December WTI crude oil futures are slightly higher late Thursday, but are struggling to rise for the week. Price action was volatile throughout the week, particularly today when traders were told to face an aggressive Federal Reserve rate hike from the previous day, a bad trade on the US dollar due to intervention by the Bank of Japan and at a lower rate than expected. hike near the Bank of England.
When the dust finally started to clear, the prospect of higher Chinese demand and geopolitical risks fueled by an escalating war in Ukraine proved to be powerful bullish catalysts.
Chinese crude demand rebounds after strict COVID-19 restrictions lifted
At least three Chinese state oil refineries and one private mega-refiner plan to increase cycles by up to 10% in October from September, eyeing stronger demand and a possible increase in fuel exports in the fourth quarter , people with knowledge of the matter said, Reuters reported.
Chinese refiners expect Beijing to release up to 15 million tonnes of petroleum product export quotas for the rest of the year to support the no. 2 the slump in the economy’s exports. Such a move would signal a reversal in China’s petroleum product export policy, increase global supply and lower fuel prices, according to Reuters.
Traders eye supply disruptions as Russia begins massive call for war
Oil prices are supported on Thursday after Russia advanced with its biggest…
December WTI crude oil futures are slightly higher late Thursday, but are struggling to rise for the week. Price action was volatile throughout the week, particularly today when traders were told to face an aggressive Federal Reserve rate hike from the previous day, a bad trade on the US dollar due to intervention by the Bank of Japan and at a lower rate than expected. hike near the Bank of England.
When the dust finally started to clear, the prospect of higher Chinese demand and geopolitical risks fueled by an escalating war in Ukraine proved to be powerful bullish catalysts.
Chinese crude demand rebounds after strict COVID-19 restrictions lifted
At least three Chinese state oil refineries and one private mega-refiner plan to increase cycles by up to 10% in October from September, eyeing stronger demand and a possible increase in fuel exports in the fourth quarter , people with knowledge of the matter said, Reuters reported.
Chinese refiners expect Beijing to release up to 15 million tonnes of petroleum product export quotas for the rest of the year to support the no. 2 the slump in the economy’s exports. Such a move would signal a reversal in China’s petroleum product export policy, increase global supply and lower fuel prices, according to Reuters.
Traders eye supply disruptions as Russia begins massive call for war
Oil prices are supported on Thursday after Russia continued its largest military mobilization since World War II.
President Vladimir Putin’s order to mobilize 300,000 more Russians to fight escalates a war that has already killed thousands, displaced millions, pulverized cities, damaged the global economy and reignited the Cold War, according to Reuters .
Putin’s move chased weak Crude Oil shorts, while attracting the attention of just enough bullish speculators to provide support.
There was no rally to speak of, as so far the event has not resulted in a supply disruption. Bullish traders are betting that world leaders will come together to form some sort of deal that will once again limit the amount of Russian oil coming onto the open market. Any deal that results in a supply disruption could trigger the start of a strong rally.
One such factor that could trigger a rally is a price cap. According to Reuters, the European Union is considering an oil price cap, tougher restrictions on high-tech exports to Russia and more sanctions against individuals, diplomats said, responding to what the West has condemned like an escalation of Moscow’s war in Ukraine.
OPEC+ production shortfall highlights tight supply situation
OPEC+ missed its oil production target of 3.583 million barrels per day (bpd) in August, and an internal document showed it missed its target of 2.892 bpd in July, Reuters reported. . Early in the week, prices jumped on the news as it represented a sign of tight underlying supply.
Meanwhile, the deadlock over reviving the Iran nuclear deal also continues to prevent that country’s exports from fully returning to the market. Expect crude oil prices to pull back if the deal goes through.
When crude oil was trading near the $110 level, the Biden administration was eager to close this deal. Now that oil prices are down more than $30 from their highs for the year, the US government doesn’t seem as interested in getting the deal done.
Weekly technical analysis
December WTI Weekly Crude Oil
Analysis of trend indicators
The main trend is down. A trade at $80.48 will signal a resumption of the downtrend. A move to $95.55 will change the main uptrend.
The minor trend is also down. Removing $88.83 will change the minor uptrend. This will also shift the momentum up.
Retracement level analysis
The main range is $60.20 to $110.78. The market is currently trading inside its retracement zone between $85.49 and $79.52.
The minor range is $95.55 to $80.48. Its 50% level at $88.02 is resistance.
The short-term range is $110.78-$80.48. If the main trend turns higher, look for a test of its retracement zone at $96.78 to $100.08.
The contract range is $34.75 to $110.78. Its retracement zone at $72.77 to $63.79 is the next major downside target. Buyers are likely to come and test this area as it represents value.
Weekly Technical Forecast
The direction of the December WTI Crude Oil market for the weekend of September 30 will likely be determined by the reaction of traders to the main 50% level at $85.49.
Bearish scenario
A sustained move below $85.49 will indicate the presence of sellers. This could trigger a quick break into the minor low at $80.48, followed by the main 61.8% level at $79.52. Look for a countertrend technical bounce on the first test of this level.
The Fibonacci level at $79.52 is also a potential trigger point for downward acceleration with the first target of the contract’s 50% level at $72.77. Look for countertrend buyers in the first test of this level.
Bullish scenario
A sustained move above $85.49 will signal the presence of buyers. This could lead to a quick test of the minor pivot at $88.02. Followed by the minor top at $88.83. Exceeding this level will indicate that the short cover rally is gaining strength. If this move generates enough upward momentum, look for a push towards the main high at $95.55.
Short-term outlook
I don’t think it’s a coincidence that oil prices have been under pressure since the Fed began aggressively raising interest rates this summer. Therefore, it is not surprising that prices are holding close to the lows set at the start of the war in Ukraine on February 24.
The Fed is doing its job trying to deflate high asset prices. While this may have helped push crude prices lower, the charts suggest that until there is an extended break below the February war lows, the market will be supported.
On Wednesday, the Fed raised its benchmark rate another 75 basis points and pledged to keep raising rates until the battle against inflation is won. Additionally, the Fed warned that there will be “pain,” suggesting the economy will weaken.
The U.S. dollar hit a new 20-year high this week, which could weigh on foreign demand for dollar-denominated crude oil. Additionally, the yield curve has inverted, which is a traditional indication of a recession.
With a slew of central banks aggressively raising rates, it seems inevitable that global appetite for crude oil and fuel will eventually slow, but this assessment is for demand only.
Those clamoring for lower prices due to a recession may have forgotten that supply is also part of the equation. So while demand concerns can limit gains. Concerns about a supply disruption due to the escalation of the war are likely to provide support. This underpins our notion of a rangebound trade.
Technically, our valuation will take a hit if $79.52 is pulled back by a wave of strong selling pressure. However, a move above $85.49 will strengthen our case for a short-term war-driven rally.
Look for the downside bias to extend below $79.52, but an upside bias develops on a sustained move above $85.49.