U.S. crude oil prices have surged past $90 a barrel, triggering worries about accelerating inflation and its potential impact on an economy already grappling with the Federal Reserve's aggressive interest rate hikes.
Surge in Oil Prices
The recent rise in U.S. West Texas Intermediate crude (WTI) for October delivery, settling at $90.16, marked the first close above $90 since November 2022. This spike comes amidst traders' expectations that oil supplies will remain constricted for the foreseeable future. The pressure of high oil prices is felt across global economies as it raises transportation and manufacturing costs while weighing on consumer spending. Consequently, more expensive oil has taken its toll on drivers, with U.S. consumer inflation in August seeing its most significant spike in 14 months due to rising fuel costs. Market participants even predict the possibility of oil prices touching $100 per barrel by year-end.
Impact on Global Oil Supplies
OPEC+ top producers, particularly Saudi Arabia and Russia, have played a significant role in tightening oil supplies by extending their 1.3 million barrel per day output cuts through to the end of the year. Additionally, U.S. crude production has stagnated in the backdrop of a 17% reduction in drilling rigs over the past year. The drive for near-term supplies has resulted in a likely decrease in U.S. oil inventories as refiners ramp up operations to meet the soaring demand for gasoline and diesel. These…
U.S. crude oil prices have surged past $90 a barrel, triggering worries about accelerating inflation and its potential impact on an economy already grappling with the Federal Reserve's aggressive interest rate hikes.
Surge in Oil Prices
The recent rise in U.S. West Texas Intermediate crude (WTI) for October delivery, settling at $90.16, marked the first close above $90 since November 2022. This spike comes amidst traders' expectations that oil supplies will remain constricted for the foreseeable future. The pressure of high oil prices is felt across global economies as it raises transportation and manufacturing costs while weighing on consumer spending. Consequently, more expensive oil has taken its toll on drivers, with U.S. consumer inflation in August seeing its most significant spike in 14 months due to rising fuel costs. Market participants even predict the possibility of oil prices touching $100 per barrel by year-end.
Impact on Global Oil Supplies
OPEC+ top producers, particularly Saudi Arabia and Russia, have played a significant role in tightening oil supplies by extending their 1.3 million barrel per day output cuts through to the end of the year. Additionally, U.S. crude production has stagnated in the backdrop of a 17% reduction in drilling rigs over the past year. The drive for near-term supplies has resulted in a likely decrease in U.S. oil inventories as refiners ramp up operations to meet the soaring demand for gasoline and diesel. These moves have further incentivized traders to sell their oil immediately rather than opting for storage.
Demand Dynamics
The demand for oil, especially from major consumers like the U.S. and China, remains uncertain. While U.S. demand has held strong even with rising fuel prices, China's approach has been to boost liquidity to foster the nation's economic recovery. Several reports and forecasts from international energy agencies and organizations emphasize the tightening oil market. Notably, OPEC has maintained its positive outlook for global oil demand growth in the coming years, with a forecasted rise of 2.25 million barrels per day in 2024.
Weekly Technical Analysis
Weekly December WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart. The main trend will change to down if sellers take out the swing bottom at $77.03. The next target is the futures contract high at $93.92.
Retracement Level Analysis
The contract range is $37.89 to $93.92. Its retracement zone at $65.91 to $59.29 is the major support zone. This stopped the selling in May.
The intermediate range is $93.92 to $63.00. The market is currently trading on the strong side of its retracement zone at $82.11 to $78.46, making it support.
The minor range is $63.00 to $89.33. Its retracement zone at $76.17 to $73.06 is new support.
Weekly Technical Forecast
The direction of the December WTI crude oil market the week-ending September 22 is likely to be determined by trader reaction to the intermediate Fibonacci (61.8%) level at $82.11.
Bullish Scenario
A sustained move over $82.11 will signal the presence of buyers. This could create the momentum needed to trigger an acceleration to the upside with the contract high at $93.92 the next major target price.
Bearish Scenario
A sustained move under $82.11 will indicate the presence of sellers. This could trigger a retest of the 50% level at $78.46. If this fails to attract new buyers then look for a test of the minor bottom at $77.03. If this level is taken out then momentum will shift to the downside with $76.17 to $73.06 the primary target area. This is a value zone so with the main trend up, new buyers are likely to step in to buy.
Short-Term Forecast
The near-term outlook for oil prices appears bullish. As OPEC+ countries maintain their supply cuts and unexpected events like Libya shutting down its eastern oil export terminals and Kazakhstan reducing its daily oil output come into play, the market remains tight.
Additionally, the U.S. Energy Information Administration (EIA) projects a decline in global oil inventories in the latter half of 2023, pushing Brent prices to average around $93 per barrel in the fourth quarter. However, these high prices coupled with uncertain global economic conditions might curb the global demand for petroleum products moving into 2024.
In conclusion, the soaring crude prices have initiated a ripple effect across global economies. While the inflationary concerns rise, the dynamics of supply and demand in the oil market will significantly influence the global economic landscape in the coming months.
Technically speaking, the weekly chart indicates that December WTI crude oil has a clear shot at reaching its futures contract high at $93.92. With momentum so strong, the greatest concern for bullish traders is likely the sudden reversal to the downside. While this is not likely to change the main trend to down, it is likely to be fueled by profit-taking due to an overvalued market. However, buyers are likely to step in again if prices drop into a value area.
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