Oil report | Bulls continue to advance

Oil bulls seem to have been able to overcome their hesitation and push the commodity’s price higher. Yet the overall environment for the oil market seems to be characterised by a wider uncertainty. In this report, we aim to shed light on the factors driving WTI’s price, assess its future outlook and conclude with a technical analysis of Brent.

US oil market tightness cracks

We make a start as always with the data describing the situation on the ground of the US oil market over the past week. At the end of the past week, the Baker Hughes oil rig count indicated that the number of active oil rigs in the US had increased by one, which despite being minimal, is still a positive sign given the continuous reduction over the summer. On the other hand though both the API as well as the EIA reported substantial increases of US oil inventories with the first reporting an increase of 1.174 million barrels and the second of 3.954 million barrels. The last data displayed exactly the inability of the US demand side of oil to catch up with production levels, thus implying that the tightness reported over the past few weeks in the US oil market may have cracked. We expect that should the agencies report even wider increases in the coming week as well, the data of the US oil market may start weighing on oil prices as it would imply that easing of the tightness widens.  

Demand expected to be robust

Market worries for the demand side of the international oil market seem to be maintained albeit the predictions seem to have started to change. The IEA market report for September states that “World oil demand remains on track to grow by 2.2 mb/d in 2023 to 101.8 mb/d, led by resurgent Chinese consumption, jet fuel and petrochemical feedstocks” which tends to provide a positive note. Also OPEC stuck to its forecasts for a robust demand growth in global oil demand for the current and next year. Yet at this point we must note that Chinese factories seem to continue to struggle to expand to increase economic activity. We would highlight the release of China’s industrial output and Urban investment growth rates, both being for August and due out in tomorrow’s Asian session. Should the data imply an expansion of economic activity then we may see oil prices getting some support and vice versa. On the other hand, we note that inflation in the US economy tends to remain rather stubbornly high according to the CPI rates for August that came in hotter than expected. Such a development may force the hand of the Fed to keep rates high for a prolonged period with the cumulative effect having an adverse effect on economic activity and thus oil consumption in the US.   

Supply to remain tight

On the supply side of the commodity’s trading we highlight that IEA mentioned that the production cuts of Saudi Arabia and Russia, which are to be extended to the end of 2023, will mean a substantial deficit in the oil market through the last quarter of the year. For the deficit to be overturned in the next year the oil production cuts may need to be ended and that may not be the case. It’s characteristic that Saudi Arabia is able to charge already US$100 per barrel for its oil, despite other grades of oil such as Brent and WTI being traded at lower levels. The premium charged by the Saudis to European and American customers primarily, who want to avoid Russian oil, tends to allow for a vacuum that may allow oil bulls to advance further in the coming days despite any possible hesitation.    

기술적 분석

WTI Cash Daily Chart

• Support: 90.85 (S1), 87.40 (S2), 82.25 (S3)
• Resistance: 95.15 (R1), 98.90 (R2), 103.15 (R3)

Oil’s price continued to be on the rise over the past week as it was able to break the 90.85 (S1) resistance line, now turned to support, and has reached a 10-month high. We tend to maintain a bullish outlook for the commodity’s price, given also that the RSI indicator is very high exactly showcasing the bullish sentiment among market participants. Yet we note that the bullish increase differentials since the end of August has started to narrow for every plateau higher the commodity’s price goes.

At the same time the RSI indicator has surpassed the reading of 70, highlighting the bullish sentiment yet at the same time may imply that the commodity’s price may have reached overbought levels and may be ripe for a correction lower. Yet as long as the upward trendline guiding it since the 24  of August, remains intact we tend to maintain our bullish outlook. Should the bulls actually maintain control over the commodity’s price, we may see it breaking the 95.15 (R1) resistance line and aim for the 98.90 (R2) resistance level.

Should the bears be in charge of Brent’s price direction, we may see it dropping, breaking the prementioned upward trendline, signaling an interruption of the upward movement, breaking the 90.85 (S1) support line and aiming for the 87.40 (S2) support level, if not lower.  

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