Oil expands as Tropical Storm Francine hits Louisiana

• Crude oil breaks a crucial level as it recovers for a second day in a row.
• Tropical Storm Francine slams into Louisiana, with several on and offshore facilities in the region evacuated.
• The US Dollar Index is trading above 101.50 and testing its upper bandwidth limit for a higher break.

Crude oil is up more than 1.50% for the second day in a row, after posting gains of more than 1.50% on Wednesday, which was crude oil’s biggest daily gain in two weeks. The increase comes amid growing concerns about the impact of Tropical Storm Francine on US production and after the latest OPEC report – which cut the outlook for oil demand – was seen as unrealistic given recent US and global economic activity.

The US dollar index (DXY), which tracks the performance of the US dollar (USD) against a basket of currencies, is stronger and testing the upper band of the low bandwidth it has been trading in for more than two weeks. The stronger greenback came after US consumer price index data revealed a surprise rise in the core monthly measure. That closed the door for a 50 basis point rate cut by the US Federal Reserve next week, supporting the US dollar.

At the time of writing, crude oil (WTI) is trading at $67.93 and Brent at $71.57.

Oil and Markets News: The Statistics Add Up

• The International Energy Agency (IEA) released its monthly report, which showed that the recent outage in Libya triggered a 70,000 bpd drop in OPEC’s daily output. Supply from Libya fell by 180,000 barrels a day to 980,000, Bloomberg reported.
• The IEA also reported that supply from Gulf producers was largely flat, with Saudi production unchanged at 9.01 million bpd, Iraq at 4.38 million b/d, the United Arab Emirates at 3.3 million b/d and Kuwait at 2.52 million b/d, Reuters reports.
• In the US, Tropical Storm Francine hit the Louisiana coast, reaching Category 2 strength. Oil and gas companies had previously evacuated offshore platforms in the Gulf of Mexico, Reuters reported.

Technical Oil Analysis: Damned If You Do and Damned If You Don’t

The price of crude oil is set for volatility and has no one but OPEC to thank for it. Still, the odds for more downside seem greater than the upside potential. If OPEC changes its policy and extends or extends production cuts, markets could interpret this as a sign of weakness and perceive the situation as much more dire than anticipated. If it does nothing, markets will likely remain focused on oversupply.

Oil has a long way to go before returning above $75. The first is $67.11, which needs to see at least one daily close above. Once that level is recovered, $70.00 is back on the table with $71.46 as the first level to watch out for. Ultimately, a bounce back to $75.27 is still possible, but would likely come from a seismic shift in current balances.

The next level below is $64.38, the lowest since March and May 2023. Should this level face a second test and break, $61.65 becomes a target, with of course 60, $00 as a psychologically large figure just below it, at least tempting to have tested.

US WTI Crude Oil: Daily Chart