Market Tremors
US benchmark West Texas Intermediate (WTI) crude oil and international benchmark Brent crude oil are on edge as a sudden decline in prices puts traders and investors on alert. Prices have taken a nosedive, falling around 2% on Thursday. This comes on the heels of a near 6% drop in the previous session, marking the most significant percentage loss in both Brent and WTI crude benchmarks since May. Brent futures settled at $84.07, a decline of 2.03%, while WTI came in at $82.31, down 2.3%.
Demand Worries
One of the leading culprits behind the steep fall is growing concern about fuel demand. With government data indicating a sharp decline in U.S. gasoline consumption and JP Morgan analysts noting that we're at a 22-year seasonal low in U.S. gasoline usage, investors are growing increasingly wary. Economic indicators aren't helping either; a slowdown in the U.S. services sector has cast a dark shadow over the future of oil prices.
OPEC+ Decisions
While demand concerns have taken the spotlight, the recent decisions by OPEC+ have added another layer of complexity. Despite market routs, the oil cartel and its allies, led by Russia, have decided to maintain their output cuts. Saudi Arabia will continue its voluntary 1 million barrels per day supply cut through the end of the year, while Russia is keeping its 300,000 bpd voluntary export curb in place. The OPEC+ Joint Ministerial Monitoring Committee solidified these decisions in a recent…
Market Tremors
US benchmark West Texas Intermediate (WTI) crude oil and international benchmark Brent crude oil are on edge as a sudden decline in prices puts traders and investors on alert. Prices have taken a nosedive, falling around 2% on Thursday. This comes on the heels of a near 6% drop in the previous session, marking the most significant percentage loss in both Brent and WTI crude benchmarks since May. Brent futures settled at $84.07, a decline of 2.03%, while WTI came in at $82.31, down 2.3%.
Demand Worries
One of the leading culprits behind the steep fall is growing concern about fuel demand. With government data indicating a sharp decline in U.S. gasoline consumption and JP Morgan analysts noting that we're at a 22-year seasonal low in U.S. gasoline usage, investors are growing increasingly wary. Economic indicators aren't helping either; a slowdown in the U.S. services sector has cast a dark shadow over the future of oil prices.
OPEC+ Decisions
While demand concerns have taken the spotlight, the recent decisions by OPEC+ have added another layer of complexity. Despite market routs, the oil cartel and its allies, led by Russia, have decided to maintain their output cuts. Saudi Arabia will continue its voluntary 1 million barrels per day supply cut through the end of the year, while Russia is keeping its 300,000 bpd voluntary export curb in place. The OPEC+ Joint Ministerial Monitoring Committee solidified these decisions in a recent online meeting.
Market Predictions
Despite the downturn, there's still a chorus of voices suggesting oil prices have the potential to rebound. Some analysts see a triple-digit upside based on OPEC+'s decision to keep the supply cuts. Equinor's Chief Economist, on the sidelines of an energy summit, stated that although OPEC is likely targeting prices lower than $100 a barrel, the market dynamics such as tight supply could push prices upward.
Additional Factors
Other factors are also contributing to market jitters. Extreme weather events in the U.S., such as recent torrential rains in New York, could be playing a role in declining demand. On the global front, the strength of the U.S. dollar is making crude oil more expensive for foreign buyers, adding another hurdle to potential demand recovery.
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.
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 in May.
The intermediate range is $93.92 to $63.00. The market is currently testing its retracement zone at $82.11 to $78.46.
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 13 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 establish 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.
Potential Whip-Saw Action
This week we are witnessing profit-taking or long liquidation. 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. So be careful. 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.
Short-Term Forecast: Cautiously Bearish
In the short term, the December WTI crude oil market presents a cautiously bearish outlook.
Traders are unwinding long positions initially set in anticipation of oil reaching $100 a barrel, amplifying the market's quick descent. Contributing factors include persistent demand worries and OPEC+'s unyielding position on output cuts.
For the week ending October 13, key levels to watch are $78.46 on the upside and $77.03 on the downside. A break above or below these points could target $82.11 and $74.26, respectively.
Given the risk of a "bear trap" amid current profit-taking, exercising caution is crucial for traders contemplating short positions.