U.S. West Texas Intermediate crude oil futures are trading nearly flat after posting a volatile two-sided trade throughout the week. Underpinning prices were concerns over tightening supply that offset the destructive impact of uncertain demand, and the news that the United States will release more crude from its Strategic Petroleum Reserve (SPR).
For bullish traders, the focus should be on tightening supply. The factors influencing this narrative are the OPEC+ production cuts, the EU embargo on Russian energy products, and falling U.S. stockpiles. All of these factors appear to be weighing on worries over recession-driven demand destruction and the release of SPR crude.
Increased Supply from SPR Release Capping Gains
On Tuesday, WTI fell by 3.1% and Brent by 1.7% to their lowest levels in two weeks on reports of U.S. President Joe Biden's plans to release more barrels from the Strategic Petroleum Reserve (SPR).
This is probably Biden's last chance to drive down crude oil and gasoline prices before the November elections, but it's probably only a short-term solution since the upcoming EU embargo is expected to tighten supply. Lower output from OPEC+ is also expected to increase supply.
In December, the administration plans to sell 15 million barrels of oil from its reserves, the final tranche of the 180 million barrels release announced earlier this year, a senior U.S. official said.
More Demand May Be Coming
Besides the upcoming Russian…
U.S. West Texas Intermediate crude oil futures are trading nearly flat after posting a volatile two-sided trade throughout the week. Underpinning prices were concerns over tightening supply that offset the destructive impact of uncertain demand, and the news that the United States will release more crude from its Strategic Petroleum Reserve (SPR).
For bullish traders, the focus should be on tightening supply. The factors influencing this narrative are the OPEC+ production cuts, the EU embargo on Russian energy products, and falling U.S. stockpiles. All of these factors appear to be weighing on worries over recession-driven demand destruction and the release of SPR crude.
Increased Supply from SPR Release Capping Gains
On Tuesday, WTI fell by 3.1% and Brent by 1.7% to their lowest levels in two weeks on reports of U.S. President Joe Biden's plans to release more barrels from the Strategic Petroleum Reserve (SPR).
This is probably Biden's last chance to drive down crude oil and gasoline prices before the November elections, but it's probably only a short-term solution since the upcoming EU embargo is expected to tighten supply. Lower output from OPEC+ is also expected to increase supply.
In December, the administration plans to sell 15 million barrels of oil from its reserves, the final tranche of the 180 million barrels release announced earlier this year, a senior U.S. official said.
More Demand May Be Coming
Besides the upcoming Russian embargo and the OPEC+ production cuts, unexpected news from China also helped underpin prices or at least slow down the selling.
Reuters said prices were supported by signs of resurgent demand. Private mega-refiner Zhejiang Petrochemical Corp (ZPC) won an additional crude oil import quota for 2022 of 10 million tonnes and state-run ChemChina received a further quota of 4.28 million tonnes. That is equal to about 104 million barrels.
US Crude Stockpiles Decline According to Government Data
U.S. crude oil inventories dropped the week ending October 14, while stockpiles of gasoline and distillates were little changed, the U.S. Energy Information Administration said on Wednesday.
Crude inventories fell by 1.7 million barrels in the week to October 14 to 437.4 million barrels, compared with analysts' expectations in a Reuters poll for a 1.4 million-barrel rise.
U.S. gasoline stocks fell by 114,000 in the week to 209.4 million barrels, the EIA said, compared with analysts' expectations in a Reuters poll for a 1.1 million-barrel drop.
Distillate stockpiles, which include diesel and heating oil, rose by 124,000 barrels in the week to 106.2 million barrels, versus expectations for a 2.2 million-barrel drop, the EIA data showed.
Weekly Technical Analysis
Weekly December WTI Crude Oil
Trend Indicator Analysis
The main trend is down. However, momentum has shifted to the upside following the confirmation of the closing price reversal bottom from the week ending September 30.
A move through $95.55 will change the main trend to up. A trade through $75.70 will signal the resumption of the downtrend.
The minor trend is up. A new minor top has 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 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 to $75.70. With momentum shifting to the upside, its retracement zone at $93.24 to $97.38 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 the week-ending October 28 is likely to be determined by trader reaction to the 50% level at $85.49.
Bullish Scenario
A sustained move over $85.49 will signal the presence of buyers. This could lead to a quick test of the resistance cluster at $92.34 to $93.24, followed by the main top at $95.55 and the Fibonacci level at $97.38. The latter is a potential trigger point for an acceleration to the upside.
Bearish Scenario
A sustained move under $85.49 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the Fibonacci level at $79.52. This is the last support before the main bottom at $75.70. Taking out this level will signal a resumption of the downtrend.
Short-Term Outlook
After failing in a number of attempts to drive WTI and Brent through major support levels, the narrative has now shifted to the bullish side. I'm basing this assessment on the OPEC+ production cuts and the EU's plan to keep Russia shut out of the market.
I think prices would be a lot higher if not for the periodic releases of U.S. strategic petroleum reserve oil. But that government selling program is rapidly coming to an end.
Technically, traders should look for an upside bias to develop on a sustained move over $85.49 and for the downside bias to strengthen on a sustained move under $79.52.
Holding inside $85.49 to $79.52 will indicate trader indecision and impending volatility.