Oil Outlook: Bears in full control

Oil prices continued their decline for an 8th week in a row but rebounded from the previous week’s WTI price. Today on the fundamental side we maintain our worries for the supply side of the oil market, as despite OPEC+’s implications that oil production cuts may be extended well into 2024, oil prices appear to have ignored that possibility and have continued moving lower. Our concern primarily stems from Saudi Arabia’s ambition to maintain oil prices at higher levels, as such we remain vigilant about potential shocks to the oil markets stemming from OPEC+ and in particular Saudi Arabia. The report is to be concluded with a technical analysis of WTI’s daily chart.  

Oil: Overview Report

US EIA Crude Oil inventories

The US EIA crude oil inventories figure, which was released during yesterday’s American session, came in lower than expected. The figure indicated a greater-than-expected drawdown in US oil inventories, upon which it may be inferred that demand was greater. As such, with increasing demand, it may have temporarily alleviated some downwards pressures on prices.

However, despite the release, the overall trajectory of the oil markets appears to have not deviated from their current path downwards. On the flip side though we note that API reported an increase of US oil inventories for the past week, practically, blurring the overall picture about the oil market. In conclusion, should we see a continued and sustained increase in demand for oil, it may gradually provide some support for oil prices, yet for now the price of oil appears to remain unfazed from its current downward trajectory .

China’s mixed trade data

China’s trade data for November, which were released earlier on today, sent out mixed signals. The lower-than-expected import rate may have stoked some fears about the Chinese demand side of the economy, yet the greater-than-expected export rate, seemed to contradict worries about the slowdown of China’s economy, unless Chinese factories’ inventories are depleting. The export rate which came in at 0.5% yoy, was the first positive export rate for the Chinese economy, since April of this year.

As such, the greater-than-expected export rate, could indicate that from the manufacturing side of the Chinese economy, there may have been an uptick in activity. Therefore, should China’s manufacturing follow suit, we may see an increase in demand for oil, given the heavy amount of oil which is consumed by China during the manufacturing process. However, any positive impact on oil’s prices may come further down the line rather than an instant market reaction.

Russia locks in Iraq deal

In the Middle East, Russia’s influence appears to have expanded.  As we had mentioned in last week’s oil report, “Russia is about to take control over Iraq’s biggest oil discovery for 20 years, namely the Eridu oil field”. That deal appears to have now been concluded, with Iraq’s Oil Ministry having approved Inpex’s decision to sell its 40% stake in the Block 10 region which contains the Eridu field, practically enabling Lukoil to take a greater portion of control over the oil-rich area. As a reminder of how important the field is, it is estimated to have reserves of 7-10 billion barrels.

Therefore, based on the potential worries on a political level, regarding Russia’s closer ties with China and gaining further control over the supply of oil, we may see worries for the supply side of oil prices intensifying. The supply issue may require a certain portion of time to mature in order to materially affect the market, yet we will continue to monitor the situation for any new developments. Besides the Iraqi development, Russia’s influence over the international market seems to be expanding also by the visit of Russian President Putin in Saudi Arabia. 

Oil: Technical Analysis

WTI Cash Daily Chart

• Support: 67.45 (S1), 61.75 (S2), 55.00 (S3)
• Resistance: 73.10 (R1), 78.59 (R2), 83.69 (R3)

Crude oil appears to continue moving in a downward fashion, having reached levels last seen in the last days of June 2023. For the time being we tend to maintain a bias for a bearish motion and supporting our case is the RSI indicator below our Daily chart which currently registers a figure near 30, implying a strong bearish market sentiment.

Furthermore, the apparent downward direction of the Bollinger bands, tend to further imply the market’s bearish tendencies. For our bearish outlook, to continue we would like to see a break below the 67.45 (S1) support level, with the next possible target for the bears being the 61.75 (S2) support base. On the other hand, for a sideways bias, we would like to see the commodity remaining confined between the 67.45 (S1) support level and the 73.10 (R1) resistance line. Lastly, for a bullish outlook, we would like to see a clear break above the 73.10 (R1) resistance line, with the next possible target for the bulls being the 78.59 (R2) resistance ceiling.

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