Oil drops below $70 again on surprise API build

VaselineSeptember 18, 2024

0 4 minutes read

Oil drops below again on surprise API build

Crude oil falls as jitters rise ahead of crucial Fed meeting.
The overnight API data was a surprise build against all expectations.
The US dollar index remains under pressure, trading at the lower end of its September range.

Crude oil is down on Wednesday in a very calm market that is awaiting the US Federal Reserve (Fed) meeting on Wednesday. Meanwhile, India’s government has removed the one-time tax on crude oil, Bloomberg reports. Despite expectations for a drawdown on the back of Tropical Storm Francine, which will wipe out large portions of Gulf production, the overnight inventory count from the American Petroleum Institute was 1.96 million barrels.

The US Dollar Index (DXY), which measures the greenback’s performance against a basket of six different currencies, is trading lower again. Market expectations are widely divided on the size of the initial rate cut. The outcome later this Wednesday could be a volatile event.

At the time of writing, crude oil (WTI) is trading at $69.14 and Brent at $72.32.

Oil News and Market Shifters: Support Needed for Sector

Bloomberg reported that India removed the one-time tax on crude oil effective Wednesday, according to a government notification. This comes after several producers have already signaled they are in financial trouble, with two major refiners filing for bankruptcy in China on Tuesday, for example.
Saipem has received a new offshore contract worth about $2 billion for the development of the Marjan field in Saudi Arabia, according to a statement, Reuters reports.
Around 14:30 GMT, the Energy Information Administration will release its weekly report on crude oil inventories. A reduction of 0.1 million barrels is expected from the previous accumulation of 0.833 million barrels.

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.

Oil Technical Analysis: All hope the Fed will deliver

Crude oil prices will have many traders crossing their fingers in hopes that the Fed will deliver a dovish message later tonight. A bigger-than-expected rate cut and forecasts of further rate cuts will be seen as oxygen for badly battered crude oil prices. Expect to see crude oil rise on the assumption that demand and growth will pick up again if the Fed delivers this ultra-dovish message without spooking the markets.

The first level to watch on the rise remains $70.00 after it was tested on Tuesday but failed to hold. Once there was a daily close above that, $71.46 comes back on the table as the next level to watch. Ultimately, a bounce back to $75.27 is still possible, but would likely come after a seismic shift in current balances.

Support should be very close to $68.19, which was the triple bottom in the summer of 2023. The next level below is $64.38, the low of March and May 2023. Should the level respectively faces a second test and declines, $61.65 becomes a target, with of course $60.00 as a psychologically high number just below it, at least tempting to test.

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. EIM 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.

VaselineSeptember 18, 2024

0 4 minutes read