Oil Outlook: WTI’s sideways motion maintained?

Since last report ,Oil prices jumped and seems to be maintaining its sideways motion, but is it so? Today we are to take a look at the US market, continue to discuss the possibility of OPEC delaying hiking its oil production levels, discuss the possibility of increased oil demand and have another look at the troubled Middle East. We are to conclude the report with a technical analysis of WTI’s daily chart. 

US oil market’s tightening could support oil prices

We examine the data on the ground of the US market, try to interpret their meaning and make a start with the release of the Baker Hughes active oil rig count last Friday.

The release showed that the number of active oil rigs in the US decreased by two reaching 480. The decrease tends to imply that oil demand in the US market eased, forcing oil producers to shut down oil rigs. Yet the release was overturned on Tuesday, as the American Petroleum Institute (API) reported a decrease of US oil inventories by 573k barrels, taking the market’s by surprise.

API’s drawdown was reaffirmed the next day as the Energy Information Administration (EIA) also reported a drawdown in US inventories of similar size, at -517k barrels. The decrease of US inventories tends to imply that the US oil market is tightening as demand levels tend to exceed aggregated supply of oil in the US. Should we see further signs of a tightening US oil market in the coming week, we may see oil prices getting some support.    

Worries for OPEC+’s production hike being delayed could boost oil prices

Yet despite news hitting the market last week that Saudi Arabia is preparing to raise oil output levels, Reuters reported that OPEC+ could delay hiking the oil production levels of member states beyond December.

OPEC+ is expected to increase its oil production by 180,000 barrels per day and please note that initially that increase of oil production levels was allready expected in October, yet was delayed as oil prices were falling and a possible increase of oil production could weigh on oil prices even further.

Should the oil producing cartel actually decide to delay the production hike, it would practically expand the strain on the supply side of the international market, which in turn may also have a bullish effect on oil prices.

Expansion of manufacturing activity could support oil prices

Furthermore, we would note that increased economic activity in the manufacturing sector of China, as implied by the release of October’s NBS PMI figure in today’s Asian session. The increase tends to imply that the measures taken by the Chinese Government to boost economic activity are actually working yet we tend to maintain our doubts and we would require further evidence to that end.

Yet should the release be also accompanied by a similar reading of the Caixin manufacturing PMI figure for the same month and from the US an improvement of the ISM manufacturing PMI also for October, could allow speculation for an improved oil demand outlook, in the prementioned countries, which are huge consumers. Thus further signs of increased economic activity in the manufacturing sector could provide some support oil prices, yet that remains to be seen.

War escalation in Israel avoided

Last but not least we always keep an eye out on the conflict in the Middle East as a potential factor that could raise or lower oil prices. We highlight that the Israel responded last Saturday, to the Iranian attack which took place at the beginning of the month, aiming for Iranian military targets and avoided hitting nuclear an facilities in Iran.

The size and scale of the Israeli response was downplayed by Iran in a sign of de-escalation being in progress, easing market worries for the supply side of the international oil market and in consequence easing also market worries for the threats surrounding the oil supply lines in the area.

Yet the conflict is ongoing with Lebanese and Palestinians dying and the situation could escalate at any given moment. Should we see the situation escalating further we may see a bullish effect on oil prices. O the flip side the US is intensely trying to reach a ceasefire agreement and any positive developments to that end could weaken oil prices. 

Oil Technical Analysis

WTICash Daily Chart

• Support: 66.80 (S1), 61.65 (S2), 57.25 (S3)
• Resistance: 72.20 (R1), 77.85 (R2), 82.10 (R3)

WTI’s price action edged higher after bouncing on the 66.80 (S1) support line, yet the commodity’s price action, tended to act as confirmative of its sideways direction, between the S1 and the 72.20 (R1) resistance line. Yesterday’s upward movement was somewhat expected given that the price hit on the lower Bollinger band, before correcting higher. 

We tend to maintain a bias for the sideways motion to be maintained as long as WTI’s price action remains between the R1 and the S1 yet also note that the RSI indicator remains below the reading of 50, implying a residue of a bearish predisposition on behalf of market participants yet not direction defining for the time being.

There may be an extension of the buying interest, yet for a bullish outlook, we would require WTI’s price action to break the 72.20 (R1) resistance line, opening the gates for the 77.85 (R2) resistance level which successfully reversed the commodity’s price upward movement on the 8^th of October.

Yet one could argue that the commodity price action is forming a series of consecutively lower peaks and lows since the 8^th of October and the downward motions limitations are highlighted by the downward trendline incepted since that date. For a bearish outlook, we would require WTI’s price action to break the 66.80 (S1) support line clearly, thus paving the way for the 61.65 (S2) support barrier, a level that has not seen any price action since the 20^th of August 2021.

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