Oil Prices Rise On Fed Decision And Geopolitical Risk

Thursday's Market Action Reflects Fed's Rate Move

Oil markets witnessed notable activity on Thursday, directly responding to the Federal Reserve's stance on interest rates. Brent crude futures rallied by $2.22, clocking a 2.6% gain to close at $86.85 per barrel. U.S. West Texas Intermediate (WTI) futures weren’t far behind, pushing up by $2.23 or 2.8% to wrap up the day at $82.67 per barrel. However, traders are keeping a close eye on December futures. Despite the day’s bullish move, the potential for a weekly loss remains.

Central Banks and Their Hold on Oil

The conclusion of this week's Federal Reserve meeting left rates untouched, floating between 5.25% and 5.50%. The decision sent signals across financial sectors, with many in oil trading circles reading a dovish nuance. A potential end to the Fed's aggressive rate hikes could ease the dollar, making dollar-priced oil a hotter buy on the international customers.

Across the pond, the Bank of England (BoE) remains steadfast, holding its rates at a 15-year high of 5.25% after a marathon of 14 hikes. With no immediate rate cuts on the BoE’s horizon, traders are crunching numbers and plotting charts to gauge the long-term implications of this rate stance.

Supply Considerations Amid Geopolitical Shocks

Saudi Arabia's plans are under the microscope. Talk on the trading floor suggests the oil giant may continue its voluntary curb in oil production by another million barrels daily through December. With geopolitical temperatures rising, especially the Israel-Hamas tension, traders are on high alert, ready to respond to any disruptions that could send the market into a frenzy.

Counterbalancing Saudi's conservative approach, OPEC flexed its muscles in October. A production uptick led by Nigeria and Angola was clearly noted. The U.S. isn’t sitting idle either, hitting a production high in August, with a staggering 13.05 million barrels daily output.

Key Figures Shape Global Economic Picture

Data remains king. The Energy Information Administration (EIA) recently flagged a rise in U.S. crude and gasoline stocks, hinting at refineries taking their time to rev up after maintenance. However, this news didn’t dent the gains for Brent and WTI, showing traders might be weighing other dynamics.

On the broader economic front, the picture is mixed. Muted economic reports out of China are setting off alarm bells about global economic health. The Eurozone's lukewarm inflation metrics suggest the European Central Bank might be dragging its feet on potential rate hikes. Additionally, the buying of weakness on Thursday suggests that traders are having a hard time shorting the market while there is a war going on in Gaza.

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 recent 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 the past five weeks.

The first 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.

A second minor range is $92.48 to $80.20. Its 50% level at $86.34 seems to be capping the market.

Weekly Technical Forecast

The direction of the December WTI crude oil market the week-ending November 10 is likely to be determined by trader reaction to the intermediate Fibonacci 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 challenge the minor pivot at $86.34. Overcoming this level with conviction will put the resistance zone at $92.48 to $93.92 in play. The latter is also the trigger point for an acceleration to the upside with $100 next major target.

Bearish Scenario

A sustained move under $82.11 will indicate the presence of sellers. This could trigger a further decline into the support cluster at $78.46 to $77.03. If this area fails then the trend will change to down, setting up the market for even more weakness with $74.26 a major target.

Short-term Outlook: Navigating Supply-Demand Dynamics

The oil market is in flux. While the Federal Reserve's dovish signals and a potentially softer dollar could stoke oil demand, there's the supply elephant in the room. The expected demand surge will have to grapple with supply factors, notably from the U.S. As these forces go head-to-head, oil prices stand at a crossroads. The prevailing sentiment leans bullish, but traders are constantly recalibrating, with supply factors ever-looming in the background.

Technically speaking, we have the December WTI futures contract in a position to close lower for the week, which is a potentially bearish development. However, Thursday’s reversal bottom on the daily chart is a potentially bullish sign.

The weekly chart pattern indicates that with the main trend up, buyers are coming in on a test of the retracement zone at $82.11 to $78.46.

Therefore, we have to conclude that trader reaction to the Fibonacci level at $82.11 will set the tone of the market during the week-ending November 10.