- Oil price recovers after the steep sell-off on Thursday due to mixed messaging from OPEC+ members.
- Russia’s Novak says production cuts are unlikely whilst Saudi Oil Minister seems to imply the opposite.
- US Dollar corrects after strong rally, giving Oil a backdraught.
Oil price steadies on Friday after the previous day’s tumble, as traders weigh conflicting messages from two of the largest members of OPEC+ and the US Dollar weakens. Russia’s Deputy Prime Minister Alexander Novak said that he did not think further cuts would be announced, when only a few days earlier, the Saudi Oil Minister, Prince Abdulaziz bin Salman, seemed to suggest the opposite. The next OPEC+ meeting is on June 4.
At the time of writing, WTI Oil is trading in the upper $72s and Brent Crude Oil in the upper $76s.
Oil news and market movers
- Russia’s Novak plays down the idea of production cuts, saying, “I don’t think that there will be any new steps, because just a month ago certain decisions were made regarding the voluntary reduction of oil production by some countries…”
- This seems to contradict comments from Saudi Oil Minister, Prince Abdulaziz bin Salman, who said on Tuesday speculators (interpreted as short-sellers by the media) should “watch out”, seeming to imply OPEC+ may announce cuts.
- Abdulaziz defended OPEC’s decision to cut production by 2 million barrels per day (bpd) at its meeting in October 2022. Given the Oil price is at similar levels to October, it further suggests a possible supply cut in June.
- The US Dollar recovers after Core Personal Consumption Expenditure (PCE) data for April – the US Federal Reserve’s preferred inflation gauge – shows an uptick in inflation to 4.7% YoY in April and 0.4% MoM, versus expectations that were a basis point lower for both.
- Durable Goods data comes out mixed, with headline Durable Goods in April rising 1.1% versus the consensus estimate of a 1.0% decline. Yet Durable Goods ex Defence and ex Transport both fell when they were expected to rise.
- A lack of traction in US debt-ceiling talks weighs on the Oil price as it raises the specter of the US defaulting, triggering a global recession.
- That said, past experience points to a high likelihood of the two parties agreeing a last minute deal which will act as a bullish catalyst for Oil.
Crude Oil Technical Analysis: Triangle formation hinting end of downtrend?
WTI Oil is in a long-term downtrend from a technical perspective, making successive lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. WTI Oil is trading below all the major daily Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week, which is at $66.90.
WTI US Oil: Daily Chart
A right-angled triangle has probably finished forming since price recovered from the May 4 YTD lows, as shown by the dotted lines on the chart above.
There is a chance the triangle might break out in either direction, but it is biased to break higher because the top border is very flat (it is right-angled). A breakout higher could see price rise in a volatile rally to a potential target in the $79.70s, calculated by using the usual technical method, which is to take 61.8% of the height of the triangle and extrapolate it from the breakout point higher. Oil price could even go as far as a 100% extrapolation in bullish cases, however, the 61.8% level roughly coincides with the 200-day SMA and the main trendline for the bear market, heightening its importance as a key resistance level.
Assuming Oil price reaches its target, a bullish break would also signify that price had surpassed the $76.85 lower high of April 28, thereby, bringing the dominant bear trend into doubt.
The three green bars in a row that represent the rally this week and the tentative breakout above the topside of the triangle, that accompanied Wednesday’s rally, are a bullish sign. It suggests there is still a chance price could recover after Thursday’s sell-off and eventually continue breaking out higher.
As well as the triangle, the long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a sign that it could be a key strategic bottom.
Further, the 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 – is a sign that bearish pressure is easing.
That said, until Oil price actually climbs above the $76.85 mark, the downtrend is dominant, and there is still a possibility WTI Oil price could break out lower. A decisive piercing below the triangle’s lower border would be required for confirmation, targeting $67.27, which is just above where the 200-week SMA is located and likely to offer good support. Traders might even wish to wait for a break below the lows of the triangle’s Wave B at $69.40 for added confirmation.
WTI US Oil: Weekly Chart
A break below the year-to-date (YTD) lows of $64.31 would be required to re-ignite 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.
Brent Crude Oil FAQs
What is Brent Crude Oil?
Brent Crude Oil is a type of Crude Oil found in the North Sea that is used as a benchmark for international Oil prices. It is considered ‘light’ and ‘sweet’ because of its high gravity and low sulfur content, making it easier to refine into gasoline and other high-value products. Brent Crude Oil serves as a reference price for approximately two-thirds of the world’s internationally traded Oil supplies. Its popularity rests on its availability and stability: the North Sea region has well-established infrastructure for Oil production and transportation, ensuring a reliable and consistent supply.
What factors drive the price of Brent Crude Oil
Like all assets supply and demand are the key drivers of Brent Crude 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 Brent 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 Brent Crude Oil
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of Brent Crude 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 Brent Crude 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 Brent Crude 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.
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