3 factors that could drive up oil prices | OilPrice.com
Posted on October 21, 2022
U.S. West Texas Intermediate crude oil futures are trading nearly flat after posting volatile two-sided trade throughout the week. Underlying prices were concerns over tighter supply offsetting the destructive impact of uncertain demand, and news that the US will release more crude from its Strategic Petroleum Reserve (SPR).
For bullish traders, the focus should be on tightening the supply. Factors influencing this narrative are OPEC+ production cuts, the EU embargo on Russian energy products, and falling US inventories. All of these factors appear to be weighing on concerns about demand destruction due to the recession and the release of SPR crude.
Increase in supply thanks to the cap gains of the SPR versions
On Tuesday, WTI fell 3.1% and Brent 1.7% to their lowest levels in two weeks following reports of US President Joe Biden’s plans to release more barrels from the strategic oil reserve (RPS).
This is likely Biden’s last chance to bring down crude oil and gasoline prices ahead of the November election, but it’s likely only a short-term fix since the upcoming EU embargo is expected. tighten supply. Lower OPEC+ production is also expected to increase supply.
In December, the administration plans to sell 15 million barrels of oil from its reserves, the latest tranche of the 180 million barrel release announced earlier this year, a senior U.S. official said.
More demand can happen
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U.S. West Texas Intermediate crude oil futures are trading nearly flat after posting volatile two-sided trade throughout the week. Underlying prices were concerns over tighter supply offsetting the destructive impact of uncertain demand, and news that the US will release more crude from its Strategic Petroleum Reserve (SPR).
For bullish traders, the focus should be on tightening the supply. Factors influencing this narrative are OPEC+ production cuts, the EU embargo on Russian energy products, and falling US inventories. All of these factors appear to be weighing on concerns about demand destruction due to the recession and the release of SPR crude.
Increase in supply thanks to the cap gains of the SPR versions
On Tuesday, WTI fell 3.1% and Brent 1.7% to their lowest levels in two weeks following reports of US President Joe Biden’s plans to release more barrels from the strategic oil reserve (RPS).
This is likely Biden’s last chance to bring down crude oil and gasoline prices ahead of the November election, but it’s likely only a short-term fix since the upcoming EU embargo is expected. tighten supply. Lower OPEC+ production is also expected to increase supply.
In December, the administration plans to sell 15 million barrels of oil from its reserves, the latest tranche of the 180 million barrel release announced earlier this year, a senior U.S. official said.
More demand can happen
Along with the upcoming Russian embargo and OPEC+ production cuts, unexpected news from China has also helped support prices or at least slow sales.
Reuters said prices were supported by signs of demand recovery. Private mega-refiner Zhejiang Petrochemical Corp (ZPC) won an additional 2022 crude oil import quota of 10 million tons and state-owned ChemChina received an additional quota of 4.28 million tons. This equates to approximately 104 million barrels.
U.S. crude inventories decline according to government data
U.S. crude oil inventories fell in the week ending Oct. 14, while gasoline and distillate inventories were little changed, the U.S. Energy Information Administration said Wednesday.
Crude inventories fell 1.7 million barrels in the week to October 14 to 437.4 million barrels, as analysts expected a 1.4 million barrel rise in a Reuters poll .
U.S. gasoline inventories fell 114,000 over the week to 209.4 million barrels, the EIA said, compared with analysts’ expectations in a Reuters poll for a drop of 1.1 million barrels. .
Distillate inventories, which include diesel and fuel oil, rose 124,000 barrels during the week to 106.2 million barrels, versus an expected 2.2 million barrel decline, data showed. ‘EIA.
Weekly technical analysis
December WTI Weekly Crude Oil
Analysis of trend indicators
The main trend is down. However, momentum shifted to the upside following the confirmation of the closing price reversal low for the week ending September 30th.
A move to $95.55 will change the main uptrend. A trade at $75.70 will signal the resumption of the downtrend.
The small trend is up. A new minor high was formed at $92.34. A trade through this level will reaffirm the minor uptrend.
Retracement level analysis
The main range is $60.20 to $110.78. The market is currently trading on the bullish side of its retracement zone at $85.49 to $79.52, making it a support.
The minor range is $95.55 to $75.70. Its 50% level at $85.62 is additional support.
The short-term range is $110.78-$75.70. With bullish momentum, its $93.24-$97.38 retracement zone becomes the primary upside target.
The contract range is $34.75 to $110.78. Its retracement zone at $72.77 to $63.79 is the next major downside target and value zone.
Weekly Technical Forecast
The direction of the December WTI Crude Oil market for the weekend of October 28 will likely be determined by the reaction of traders to the 50% level at $85.49.
Bullish scenario
A sustained move above $85.49 will signal the presence of buyers. This could lead to a quick test of the resistance band at $92.34-$93.24, followed by the main high at $95.55 and the Fibonacci level at $97.38. The latter is a potential trigger point for an upward acceleration.
Downside scenario
A sustained move below $85.49 will indicate that the selling pressure is building. This could trigger an acceleration towards the Fibonacci level at $79.52. This is the last support before the main low at $75.70. The removal of this level will signal a resumption of the downtrend.
Short-term outlook
After repeatedly failing to lift WTI and Brent to major support levels, the narrative has now shifted to the bullish side. I base this assessment on OPEC+ production cuts and the EU’s plan to keep Russia out of the market.
I think the prices would be much higher if it weren’t for the periodic releases of oil from the US Petroleum Strategic Reserve. But this government sales program is quickly coming to an end.
Technically, traders should be looking for a bullish bias to develop on a sustained move above $85.49 and a bearish bias to strengthen on a sustained move below $79.52.
Holding between $85.49 and $79.52 will indicate trader indecision and impending volatility.