- Oil price reverses gains and marks a decline on Friday after Republicans walked out debt-ceiling talks with President Biden.
- The US Dollar dips as safe-haven demand dries up on easing debt-ceiling worries, Oil is mainly priced in USD.
- Downside for the US Dollar is likely to be contained amidst heightened inflation expectations.
- Oil price is in a technical downtrend, favoring shorts, although there are signs a bottom may be forming.
Oil price trades modestly lower on Friday after debt-ceiling talks stall when Republican House Speaker Kevin McCarthy walked out of talks with President Biden. Earlier in the day Oil had risen on the back of optimism about the debt ceiling, as well as expectations of higher demand as a rersult of the start of the US driving season. The US Dollar Index (DXY) is down marginally at the time of writing, lending a backdraught to Crude prices, which are predominantly priced and traded in US Dollars.
WTI Crude Oil is currently trading around $72 and Brent Crude Oil $76.
Oil news and market movers
- Debt-ceiling fears resurface after House Speaker McCarthy walks out of talks with leading Democrats and President Biden, on Friday.
- Fed Chair Jerome Powell delivers a mixed speech in which he highlights the need to bring persistently high inflation down but at the time suggests tighter credit conditions have already done some of the work of raising rates for the Fed.
- The start of the US driving season is around the corner, with demand for gasoline expected to pick up for that.
- Data from the Joint Organizations Data Initiative (JODI) showed a surge in global demand for Oil in March on Thursday, further supporting Oil prices.
- The JODI report showed a surge in global demand of 3 million barrels per day (bpd) in March.
- The US Dollar comes under pressure as debt-ceiling fears ease, reducing safe-haven demand.
- The Greenback’s downside is curtailed, however, by expectations that continued inhibited borrowing and growth will lead to higher inflation and higher interest rates which will, if they materialize, support the USD.
Crude Oil Technical Analysis: Downtrend showing signs of ending
WTI Oil is in a long-term downtrend, making lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. It is trading below all the major daily Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week at $66.89.
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WTI US Oil: Daily Chart
A break below the year-to-date (YTD) lows of $64.31 would be required to reignite and reconfirm the downtrend, with the next target at around $62.00 where trough lows from 2021 will come into play, followed by support at $57.50.
Despite the dominant downtrend, there are signs that it might be reaching an end. There is mild bullish convergence between price and the Relative Strength Index (RSI) at the March and May 2023 lows, with price making a lower low in May that is not matched by a lower low in RSI. This is a sign bearish pressure is easing.
The long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a further sign this may have been a key strategic bottom.
Oil price bulls, however, would need to break above the $76.85 lower high of April 28 to bring the dominant bear trend into doubt.
WTI Oil FAQs
What is WTI Oil?
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
What factors drive the price of WTI Oil?
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
How does inventory data impact the price of WTI Oil
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
How does OPEC influence the price of WTI Oil?
OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.