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Oil is trying to snap a losing streak after Red Sea strikes resurface

  • Oil prices were trading broadly flat as they tried to snap a three-day losing streak.
  • The British Navy reported that a ship was hit in the Red Sea by Houthi rebels.
  • The US dollar index bottoms out before giving up the touch.

Oil was trading sideways on Wednesday after three sessions of sharp selling after several news outlets reported that an oil tanker had been hit in the Red Sea by Houthi rebels. Delta Tankers has confirmed that one of its vessels, the Sounion, has been attacked and is suffering minor damage. This element is highly undesirable at a time when Hamas is considering the cease-fire proposal in Gaza that both Israel and the US have put on the table.

The U.S. Dollar Index (DXY), which tracks the U.S. dollar’s performance against six major currencies, is in a similar pattern to crude oil as it tries to break this week’s losses. However, the DXY had to bottom out to do so, giving up all of its gains for 2024 and basically falling for the year before a small bounce occurred. The main event on Wednesday is the release of the minutes of the Federal Open Market Committee (FOMC) ahead of Jackson Hole on Friday, along with the benchmark revision of non-farm payrolls, which is likely to change non-farm data over the year to March of this year.

At the time of writing, crude oil (WTI) is trading at $73.23 and Brent at $76.92.

Oil and markets news: The Red Sea is back in play

  • OPEC+ does not appear to have much room, if any, to increase production, as that would put further pressure on oil prices given rising supply from the US and Brazil, according to BP Chief Economist Spencer Dale, Bloomberg reports .
  • Uganda’s Energy Minister Ruth Nankabirwa has announced that the country is moving forward with TotalEnergies and Cnooc to bring the country a $20 billion oil development project.
  • Delta Tankers reported that its tanker, the Sounion, was attacked at least three times. They are still assessing whether or not the ship is adrift and continuing its course, Reuters reports.
  • The overnight change in crude oil inventories from the American Petroleum Institute (API) saw a small amount of just 347,000 barrels. However, this was well above the 2.8 million reduction expected by analysts.
  • This Wednesday, the weekly crude oil inventory figures from the Energy Information Administration (EIA) will be released. The previous number was a build of 1.357 million, with a reduction of 2.8 million barrels expected.

Economic indicator

EIA Crude Oil Inventories Change

The EIA’s crude oil inventories report is a weekly measure of the change in the number of barrels in stock of crude oil and its derivatives and is published by the Energy Information Administration. This ratio tends to generate high price volatility as the price of oil impacts economies around the world, most affecting commodity-related currencies such as the Canadian dollar. Despite having a limited impact across currencies, this report tends to affect the price of oil itself and has therefore had a more notorious impact on WTI crude oil futures.

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Technical Oil Analysis: Have You Jumped In Yet?

Oil is trying to break its losing streak and start a recovery, although this looks pretty bleak.. However, the recent increase in attacks in the Red Sea could mean headaches for the ceasefire agreement that Hamas they have to consider it at the moment and could quickly see an increase in violence again if the situation escalates further.

In addition, it becomes very difficult to be optimistic with a lot of resistance levels nearby. The first item to watch is the $75.27 pivot. Next is the double level at $77.65, which aligns with both a downtrend line and the 200-day simple moving average (SMA). If the bulls manage to break through it, the 100-day SMA at $78.45 could trigger another rejection, as it did last week.

On the downside, the August 5 low at $71.17 is the best level for a bounce. It might not be a bad idea to start considering levels below $70.00, especially if the ceasefire talks bear fruit and hedge funds start selling their speculative holdings in oil contracts. The high figure level of $68.00 is the first level to watch, followed by $67.11, which is the lowest point of the triple bottom seen in June 2023.

US WTI Crude Oil: Daily Chart

US WTI Crude Oil: Daily Chart

Frequently asked questions about WTI oil

WTI Oil is a type of crude oil sold on international markets. 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” due to its relatively low gravity and sulfur content, respectively. It is considered a high quality oil that is easy to refine. It originates in the United States and is distributed through the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a reference point for the oil market and the price of WTI is frequently quoted in the media.

Like all assets, supply and demand are the key drivers of the 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 affect prices. Decisions by OPEC, a group of major oil-producing countries, is another key price driver. The value of the US dollar influences the price of WTI crude oil because oil is predominantly traded in US dollars, so a weaker US dollar can make oil more affordable and vice versa.

The weekly oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) influence the price of WTI oil. Changes in inventories reflect fluctuations in supply and demand. If the data shows a decline in inventories, it may indicate an increase in demand, leading to higher oil prices. Higher inventories may reflect increased supply, pushing prices down. The API report is published every Tuesday and the EIA the following day. Their results are usually similar, falling within 1% of each other 75% of the time. EIA data is considered more reliable because it is a government agency.

OPEC (Organization of the Petroleum Exporting Countries) is a group of 13 oil-producing nations that collectively decide production quotas for member countries when they meet twice a year. Their decisions often affect WTI oil prices. When OPEC decides to cut 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 additional non-OPEC members, the most notable of which is Russia.

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