With the escalation of tensions in the Middle East, oil prices are gaining some momentum.
OPEC+is about to release its monthly OPEC report, and based on last week's meeting results, the report should not bring any surprises.
The US dollar index rose due to the influx of safe haven funds and increased uncertainty regarding the Fed's December interest rate decision.
Crude oil rose for the third consecutive day on Wednesday, but due to traders seemingly reducing their risk exposure before the end of the year, crude oil cannot truly rely on the escalating situation in the Middle East. The news that the United States is considering imposing an additional embargo on oil produced by Russia is also of no help, as it may put pressure on prices.
The US Dollar Index (DXY), which measures the performance of the US dollar (USD) against a basket of currencies, remained stable before the release of the November US Consumer Price Index (CPI) data scheduled for Wednesday. The Federal Reserve (Fed) will still rely on data until further notice and evaluate whether it is appropriate to cut interest rates at next week's meeting based on inflation rates. A higher than expected inflation rate may be enough to stop the Federal Reserve from cutting interest rates and maintain interest rate stability until 2025.
As of the time of writing, crude oil (WTI) was reported at $69.01, while Brent crude oil was reported at $72.73.
The Organization of the Petroleum Exporting Countries (OPEC+) will release its monthly report this Wednesday. Given that the Organization of the Petroleum Exporting Countries (OPEC+) has widely conveyed its intention last week to confirm a three-month delay in normalizing production until April 2025, it is expected that there will not be much new content. According to Reuters, Saudi Aramco has lowered prices for deliveries to Asian buyers (who make up the majority of its exports) in January, strengthening the outlook for weak market fundamentals in the first half of 2025. According to Bloomberg, the speculative net long position in US Commodity Futures Trading Commission (CFTC) oil futures fell as traders reduced their risk exposure due to concerns about the prospects of the US shale oil industry during President elect Donald Trump's second term and the response measures of the Organization of the Petroleum Exporting Countries (OPEC+). According to Bloomberg, just weeks before President elect Donald Trump returns to the White House, the Biden administration is weighing new and tougher sanctions on Russian oil trade to strengthen control over the Kremlin. The Energy Information Administration (EIA) will release a weekly report on changes in crude oil inventories at 15:30 Greenwich Mean Time. It is expected that inventory will decrease by 1.3 million barrels, compared to a decrease of over 5 million barrels in the previous week.
Despite the escalating tensions in the Middle East, crude oil prices have once again missed a good opportunity, facing more downward space than upward space. Traders have instead reduced their crude oil positions and turned their attention to the recent bullish drivers, hoping for a glimmer of hope for the bullish sentiment after President elect Trump takes office. Trump has promised to further increase oil production, which will put pressure on prices.
The 55 day moving average (SMA) at $69.96 is the top resistance level to pay attention to in the upward trend. If tensions in the Middle East escalate further, the 100 day moving averages of $71.46 and $71.25 will become the main resistance levels. If oil traders can break through this level, $75.27 will be the next key level.
On the other hand, traders believe that $67.12- the price level for May and June 2023- is the final support. Once it falls below, the low point from 2024 to present will appear at $64.75, followed by $64.38, which is the low point since 2023.
US WTI Crude Oil: Daily Chart
WTI crude oil is a type of crude oil sold in the international market. WTI stands for West Texas Intermediate crude oil, which is one of the three main crude oils including Brent crude oil and Dubai crude oil. WTI is also known as "light" and "low sulfur" crude oil because of its relatively low specific gravity and sulfur content. It is considered a high-quality crude oil that is easy to refine. It is produced in the United States and distributed through the Cushing Hub, which is considered the "crossroads of the world's pipelines". It is the benchmark of the oil market, and WTI prices are often cited in the media.
Like all assets, supply and demand are key drivers of WTI crude oil prices. Therefore, global growth can become a driving force for demand growth, and vice versa, leading to weak global growth. Political instability, war, and sanctions may disrupt supply and affect prices. The decision of the Organization of the Petroleum Exporting Countries (OPEC), composed of major oil producing countries, is another key driving factor for oil prices. The value of the US dollar affects the price of WTI crude oil, as oil is mainly traded in US dollars, so a weak US dollar can make oil cheaper, and vice versa.
The weekly oil inventory reports released by the American Petroleum Institute (API) and the Energy Information Administration (EIA) affect the price of WTI crude oil. The changes in inventory reflect fluctuations in supply and demand. If the data shows a decrease in inventory, it may indicate an increase in demand, thereby pushing up oil prices. An increase in inventory can reflect an increase in supply, thereby lowering prices. The report on air pollution index is released every Tuesday, and the environmental impact assessment report is released on Tuesdays. Their results are usually similar, with an error of within 1% in 75% of cases. The data of environmental impact assessment is considered more reliable because it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is an organization composed of 12 oil producing countries, which holds two meetings annually to jointly determine the production quotas of its member countries. Their decisions often affect WTI crude oil prices. When OPEC decides to lower quotas, it can tighten supply and push up oil prices. When OPEC increases production, it will have the opposite effect. OPEC+"refers to an expanded organization that has added 10 non OPEC member countries, with the most notable being Russia.