December West Texas Intermediate (WTI) crude oil futures experienced a volatile week, with prices swaying due to geopolitical tensions and shifts in supply and demand metrics. The market started the week strong, driven by concerns of supply disruptions following the terrorist attacks by Hamas on Israel. However, the bullish sentiment quickly faded.
Israel-Hamas Conflict and Oil Supply
Initially, oil prices surged to a weekly high of $85.56 due to fears that the escalating conflict between Israel and the Palestinian Islamist group Hamas could morph into a broader crisis, affecting global oil supplies. But this concern was short-lived. After Saudi Arabia intervened, promising to work with international partners to stabilize the oil market, prices took a downturn.
IEA and EIA Reports Add Uncertainty
On the supply front, contrasting reports from the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) left traders in a quandary. The IEA lowered its oil demand growth forecast for 2024, citing harsher global economic conditions and advancements in energy efficiency. The EIA, however, reported that global oil inventories would decrease due to voluntary output cuts from Saudi Arabia and altered production targets among OPEC+ countries.
OPEC's Role
Adding to the complexities of the market, OPEC and Russia reaffirmed their commitment to coordination for oil market predictability. Russian President Vladimir Putin stated…
December West Texas Intermediate (WTI) crude oil futures experienced a volatile week, with prices swaying due to geopolitical tensions and shifts in supply and demand metrics. The market started the week strong, driven by concerns of supply disruptions following the terrorist attacks by Hamas on Israel. However, the bullish sentiment quickly faded.
Israel-Hamas Conflict and Oil Supply
Initially, oil prices surged to a weekly high of $85.56 due to fears that the escalating conflict between Israel and the Palestinian Islamist group Hamas could morph into a broader crisis, affecting global oil supplies. But this concern was short-lived. After Saudi Arabia intervened, promising to work with international partners to stabilize the oil market, prices took a downturn.
IEA and EIA Reports Add Uncertainty
On the supply front, contrasting reports from the International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) left traders in a quandary. The IEA lowered its oil demand growth forecast for 2024, citing harsher global economic conditions and advancements in energy efficiency. The EIA, however, reported that global oil inventories would decrease due to voluntary output cuts from Saudi Arabia and altered production targets among OPEC+ countries.
OPEC's Role
Adding to the complexities of the market, OPEC and Russia reaffirmed their commitment to coordination for oil market predictability. Russian President Vladimir Putin stated that OPEC+ coordination would continue, implying more organized and less unpredictable moves in oil production levels.
U.S. Market Indicators
Stateside, concerns about economic growth and inflation have made traders wary. U.S. producer prices rose more than expected in September, but core inflation remained relatively stable. The latest minutes from the Federal Reserve's September policy meeting reveal that uncertainty around the path of the U.S. economy has put officials in a cautious stance. Higher interest rates to combat inflation can further slow economic growth and reduce oil demand, putting additional pressure on oil prices.
Supply Glut and Lower Demand
The market was also hit by bearish indicators like a massive build in U.S. crude inventories, much higher than analyst expectations, which rose to 424.2 million barrels last week. Lower refining utilization rates and higher net imports contributed to this bearish outlook. Meanwhile, U.S. crude output reached a record 13.2 million barrels per day, exacerbating the supply glut.
Weekly Technical Analysis
Weekly December WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart. However, due to the two consecutive lower lows on the weekly chart, a new main top has formed at $92.48. The main trend will change to down if sellers take out the swing bottom at $77.03. The uptrend will resume on an extended trade through the two main tops at $92.48 and $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 the week ending May 5.
The intermediate range is $93.92 to $63.00. The market is currently testing its retracement zone at $82.11 to $78.46. It has held as support for the past two weeks.
The minor range is $63.00 to $92.48. Its retracement zone at $77.74 to $74.26 is additional support.
The intermediate and minor retracement zones form a potential support cluster at $78.46 to $77.74. This is a value area that could attract new buying. Furthermore, it is the last support area before the main bottom at $77.03, so trend traders may step in on a test of this area in order to prevent a change in the main trend.
Weekly Technical Forecast
The direction of the December WTI crude oil market the week ending October 20 is likely to be determined by trader reaction to the intermediate 50% level at $78.46 and the main bottom at $77.03.
Bullish Scenario
A sustained move over $78.46 will signal the presence of buyers. This could create the momentum needed to regain the Fibonacci level at $82.11. This would also give established longs a little breathing room.
Bearish Scenario
A sustained move under $77.03 will indicate the presence of sellers. Not only will this change the weekly trend to down, but it could trigger a sharp break into Fibonacci support at $74.26. This is an important support level because it is also the trigger point for an acceleration to the downside with $65.91 the next major target.
Short-Term Outlook: Cautiously Bearish
In the short term, the oil market appears bearish. Despite initial price gains driven by geopolitical tensions, a series of bearish indicators have caused prices to retreat. The huge increase in U.S. crude inventories, coupled with the higher output and lower demand expectations, suggests a weaker market in the near term.
Saudi Arabia's and Russia's efforts to stabilize the market haven't yet dispelled concerns over supply disruptions from geopolitical tensions. Furthermore, with the IEA lowering its demand forecast, the path for global growth recovery looks rockier than ever.
As traders navigate these choppy waters, one thing is certain: Volatility in the oil market is unlikely to ease soon, given the various geopolitical and economic factors at play.
Technically, for a second week in a row, it is suggested that traders be aware of potential whip-saw price action. During the first week, we witnessed profit-taking and long-liquidation. However, shorting this far from the top and this close to support could create a "bear trap", fueling a wicked rebound rally and a whip-saw scenario.
If this market is headed lower over the longer term, new short-sellers are likely to come in after a rebound rally. The bottom line, exercise caution shorting weakness.
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