Rising oil supply remains at the center of the news today and especially figures from the US confirm this statement. Last night the American Petroleum Institute reported U.S. crude inventories increased by 5.7 million barrels last week, sending the message that oil production in the US is in full power. We support the opinion that, US production figures are expected to continue rising with reference to the Baker-Hughes rig count, adding two rigs last week. It must be noted that for new Oil rigs to be added, demand for black gold has increased as that could be written as a mathematical equation.
At the same time, the US Sino issue resurfaced adding new uncertainties to the world. In the last days we have seen a strong US dollar which could be related to trade wars but then again affects the crude oil market significantly. Oil barrel prices are denominated in US dollars and so by increasing the greenback’s value, countries importing big amounts of Oil need more money in order to purchase the commodity. For example, India which is among the biggest Oil importers internationally has had a hard time with rising Oil prices this year but also finding new sources with favorable deals, in order to undertake for its supply needs. India is one of the countries that are still in business with Iran even though it is under pressure from the US to reduce imports to zero levels. India’s huge Oil requirements and needs along with China and Turkey who also purchase Oil from Iran may be forced to request waivers for the time being until the situation with Persia is sorted out. As Iranian sanctions are just days away from being implemented, the Oil market stands still observing price movement and reaction. According to various sources and market sentiment, Oil follower’s main fear is a big spike in Oil prices. If this scenario is to take place Oil prices could move towards 75 to 80 USD per barrel. If the US decides to ease its stance towards Iran by any means the situation could be smoothened and the reaction could be muted but time is running out and nothing has been announced entering November, which states things could remain as expected and the US will start charging anyone doing business with Iran.
On another front, last weekend Russia’s Oil minister Alexander Novak stated that the OPEC plus group has no reason to stop production but also made a case for an oil deficit in the market. The deficit is something we have not confirmed and is not clear whether he is referring to the exclusion of Iran, though the message that Oil pump continues normally is clearly sent. In our opinion, the strongest Oil capacity and production worldwide at the moment, is taking place in the US and then in Saudi Arabia and Russia. Even though oil production persists, oil prices are also kept high compared to the start of 2018. High Oil prices in many countries are directly related to consumer prices which are not seen as positive. Keep in mind with rising crude oil prices, there is also the fear of hurting producer interests.
As a conclusion, a long-term view in the Oil market expects to result in a peak demand for products like diesel and gasoline within the next years due to excessive consumption in plastic as well as fuel demand for air travel which have triggered large-scale refinery investment into petrochemical products. However, the rise of electric vehicles also looms.
WTI 1 Hour Chart below
- Support: 66.00 (S1), 64.75 (S2), 63.35 (S3)
- Resistance: 67.35 (R1), 68.50 (R2), 69.90 (R3)
WTI prices moved higher yesterday, despite the release of the API weekly crude oil inventories figure showed a substantial injection of 5.7 million barrels. Currently, there are some signs of stabilisation between the 66.00 (S1) support line and the 67.35 (R1) resistance line. It should be noted, that the surplus is the second consecutive on a weekly basis.
Technically, we change our bearish bias to a sideways trend line, oil price action has broken its downward trend line. It should be noted that the RSI indicator in the 1-hour chart is currently near the reading of 50, implying an indecisive oil market.
The EIA weekly crude oil inventories today is forecasted to release a figure of +4.11M barrels. Should the bulls take over, we could see oil prices breaking the 67.35 (R1) resistance line, aiming for the 68.50 (R2) resistance area, and should that area be breached, the black gold could aim for the 69.90 (R3) hurdle.
On the contrary, should the bears dictate the commodity’s direction, we could see it breaking the 66.00 (S1) support line, aiming for the 64.75 (S2) support level. If that level (S2) is breached then the path would be paved for the 63.35 (S3) support barrier.
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