Will We See $90 WTI Soon?

U.S. Crude Trends Upward

U.S. benchmark October West Texas Intermediate (WTI) crude oil prices marked a significant uptick, with U.S. crude oil seeing an increase of over $2 a barrel on Thursday. This jump is attributed to expectations that the OPEC+ consortium, dominated by Saudi Arabia, will maintain their production cuts till 2023's end. This would mark an extended period of OPEC-led reductions, further consolidating the market's bullish stance. Additionally, West Texas Intermediate (WTI) registered a 2.2% gain, marking its third consecutive month of positive momentum, a testament to the increasingly tight supply.

Depletion and Production Dynamics

Recent data from the U.S. government illuminated the crude landscape, revealing a rise in U.S. crude oil production by 1.6% in June, reaching 12.844 million bpd, its apex since the pre-pandemic days of February 2020. Despite this, U.S. crude stockpiles took a dive, diminishing by an unexpected 10.6 million barrels in the past week, a result of heightened exports and intensified refinery operations. Furthermore, the continuous drawdown in U.S. inventories, coupled with augmented production cuts by giants like Saudi Arabia and Russia, totaling around 75 million barrels in the past two months, points to an imminent market tightening.

Global Market Repercussions

U.S. crude inventories often serve as a bellwether for the global oil market, owing to their timely weekly reports, offering a near real-time glimpse into the production-consumption balance. A consistent decline in U.S. stock levels is typically interpreted as a global market deficit, propelling both spot prices and spreads northward. Moreover, Saudi Arabia has tactically directed its crude exports away from the West, hiking official selling prices for U.S. buyers, in contrast to more competitive rates for Asian refineries.

U.S. Economic Indicators

On the broader economic front, the U.S. saw a 0.8% surge in consumer spending last month. However, the nation's Q2 GDP growth underwent a revision, dropping to 2.1% from the previously reported 2.4%. Concurrently, private payroll growth saw a slowdown in August. This economic data, coupled with consistent inflation rates, hints at a potential hiatus in the Federal Reserve's monetary tightening endeavors. This could put pressure on Treasury yields, while subsequently driving down the U.S. Dollar. A weaker greenback tends drive foreign demand for dollar-denominated crude oil.

Weekly Technical Analysis

Weekly October WTI Crude Oil

Trend Indicator Analysis             

The main trend is up according to the weekly swing chart. A trade through $84.16 and $85.03 will reaffirm the uptrend. The main trend will change to down if sellers take out the swing bottom at $64.42.  

The minor trend is also up. A new minor bottom was formed this week at $77.59. A trade through the last minor top at $84.16 reaffirms the uptrend. Taking out $77.59 will change the minor trend to down. The main trend will remain intact, however, momentum will shift to the downside.

Retracement Level Analysis

The contract range is $37.88 to $95.40. Its retracement zone at $66.64 to $59.85 is the major support.

The intermediate range is $95.40 to $64.42. The market is currently testing the upper level of its retracement zone at $83.57.  A sustained move over this level will indicate the buying is getting stronger. A break back under $79.91 won’t change the trend, but it will be a sign of weakness, probably linked to profit-taking or demand concerns.

The minor range is $64.42 to $84.16. Its retracement zone support is $74.29 to $71.96. This is the primary downside target and near-term value zone.

Weekly Technical Forecast

The direction of the October WTI crude oil market the week-ending September 8 is likely to be determined by trader reaction to the intermediate Fibonacci (61.8%) level at $83.57.

Bullish Scenario

A sustained move over $83.57 will signal the presence of buyers. This could create the momentum needed to take out the main tops at $84.16 and $85.03. Taking out the latter could trigger an acceleration to the upside with the contract high at $95.40 the next major target price.

Bearish Scenario

A sustained move under $83.57 will indicate the presence of sellers. This could trigger a retest of the 50% level at $79.91. If this fails then look for a test of the minor bottom at $77.59. If this level is taken out then momentum will shift to the downside with $74.29 to $71.96 the primary target area. This is a value zone so with the main trend up, new buyers are likely to step in to buy.

Short-term Forecast: Bullish on Oil

Fundamentally speaking, with depleting inventories and a perceived tightening of the crude oil market, the short-term forecast appears bullish. The persistent OPEC+ production cuts, coupled with reduced inventories and strategic geopolitical maneuvers by major oil-producing nations, promise to keep prices on an upward trajectory. However, external factors, such as weakening manufacturing activity in economies like China, might pose challenges to this bullish trend.

Technically speaking, all eyes will be on the Fibonacci level at $83.57 early next week. Overcoming this level with conviction could trigger a quick test of a pair of main tops at $84.16 and $85.03. Overtaking $85.03 with strong buying power could launch an acceleration to the upside with the contract high at $95.40 the next major target.

For speculators, it's time to focus on what's in the rearview mirror: shrinking stocks, OPEC+ solidarity, and a favorable monetary environment. So, oil bulls are likely to keep the proverbial pedal to the metal.