The steady rise of Oil prices continues as WTI is currently running its 5th consecutive week breaking to new high levels. With the upward trend being solid and constant, WTI is currently trading at multiyear highs forcing the media to turn significant attention to Oil fundamentals. This report aims at covering the most important updates in the Oil market making traders aware of the topics most probably forming the price action from here on, while at the end our technical analysis will assist with important technical levels and trend scenarios.
The weekly Oil market data is used by traders to make decisions before placing orders thus we make a start with the releases in the previous days. On the 13th of October the API inventory levels of US crude oil indicated a large surplus of 5.2M barrels. WTI’s price did not react to the news showing traders are focused on different aspects of the market at the moment. However, during the past Friday the Baker Hughes rig count a measure of demand for Oil in the US indicated a slight increase to 433 active Oil rigs.
Oil rigs in the US have not reached these levels since April 2020 as the pandemic slashed demand. Yet with the Oil rigs rising gradually we have solid evidence that demand remains robust in the US. If active Oil rigs continue to rise with this pace then we will soon be reaching pre pandemic levels of demand and Oil rigs. In this case Oil prices could be heading higher. Today the 14th of October traders will be focusing on the release of the EIA Crude Oil Inventories figure to be released in the US session. However, from the abovementioned we may derive to the conclusion that weekly Oil readings may not be the main focus for traders at the moment.
OPEC’s monthly report for October comes in very handy at this time as it was released yesterday the 13th shedding more light on the drivers of the market currently. According to OPEC’s report demand has recovered while lower inventories and easing of virus driven restrictions in Asian countries could be contributing to the ongoing surge in prices. Another important note from OPEC was that Oil demand maybe be swelled at the moment as other sources of energy like Natural Gas and coal are currently in shortage leaving Europe and Asia with no other choice but to turn to Oil.
Moreover, the fact that Natural Gas prices were lifted to multiyear high levels has also prompt a turn to Oil and possibly added to its subsequent rise in prices. On the Oil supply front the market seems depleted at the moment, as US Oil production was impacted in the 3Q of 2021 with Hurricane Ida limiting production and output in the Gulf of Mexico. On the other hand the OPEC plus group remained reluctant to increase supply, keeping it at 0.4M mb/d on a monthly basis as decided previously extending this decision for the month of November 2021.
Finally, comments from Russian Deputy Prime Minister Alexander Novak claimed the Oil market to recover fully be the end of 2022. In our view, what could be understood by this comment is a normalization between demand and supply levels with the price action possibly heading to lower levels thereafter. Oil usage has drastically increased since the pandemic’s initial stage, yet supply has seen marginal increases possibly due to virus fears being imminent and could affect the biggest Oil players’ strategy.
WTI’s price action at the moment is leaning towards the (R1) 81.30 resistance level while in the most recent h4 sessions we have also observed a test of the (S1) 79.00 support, indicating this range could be key. In the scenario of a bullish interest, then a breach above the (R1) could be signaling a move to the (R2) 82.50 level. If the (R2) is breached then we could expect a notable surge to higher levels and the commodity will be moving in a price range seen back in 2014 possibly aiming for the (R3) 85.00 line. If the bears take over and the (S1) is broken then (S2) 77.65 level that was used previously as a resistance could be tested. The (S3) 75.50 support that was tested for the last time on the 7th of October is our support for a more prolonged strategy. The commodity is currently moving in an upward momentum that is highlighted by our ascending trend line on our chart. As long as the price action remains above the noted trend line we tend to maintain our bullish outlook for WTI. Finally, the RSI indicator remains above 50 confirming the buying order still exceed the selling ones.