- Crude Oil rallies 2% on Monday with Biden administration verbally pushing back on targeting Iranian oil fields.
- Markets are pricing in even more risk premium, with uncertainty ruling now over Israel’s next step in this escalation.
- The US Dollar Index steadies near recent highs ahead of a Fed-packed Monday.
Crude Oil rallies again for a fifth straight day on Monday after Israel got a red light on its request to bomb Iranian oil fields. United States (US) President Joe Biden said on Friday that it was under consideration, suggesting that other targets should be looked for instead. With no headlines that the Biden administration has given the green light, it looks like Israel will revert to other actions, which adds to even more uncertainty.
The US Dollar Index (DXY), which tracks the performance of the Greenback against six other currencies, is trading broadly flat on Monday. All eyes will be on the September’s US Consumer Price Index (CPI) release later this week. In the run-up to those numbers, markets will hear from no less than four Fed officials this Monday.
At the time of writing, Crude Oil (WTI) trades at $74.82 and Brent Crude at $78.67.
Oil news and market movers: Risks on Israel’s next steps
- Oil production is suspended at Kashagan’s major Gas and Oil field due to the start of scheduled overhaul, the Kazakhstan Ministry of Energy confirms to Interfax.
- A Goldman Sachs note from head analyst Daan Struyven sees Brent hit $90 when Iranian exports would be disrupted, Bloomberg reports.
- Tension in the Middle East remained elevated with over the weekend Israel sending in troops in northern Gaza, while aerial attacks and ground maneuvres in Lebanon were taking place at the same time, Reuters reported.
- Option markets are seeing a wave of buyers coming in with an appetite for call options, sending implied volatility for Brent to the highest level in almost a year, while money managers added more net-long positions to their portfolios, the Chicago Futures Trading Commission reported.
Oil Technical Analysis: How much more risk premium to add?
Crude Oil prices are going through the roof again, with WTI popping above $75.00 for the first time since the end of August. The fact that the Biden administration has not really confirmed or fully rejected the call from Israel to attack Iranian oil fields is creating ever more uncertainty for markets. With uncertainty comes risk premium, which is being priced this Monday.
The current Crude Oil price level, with the red descending trendline and the 100-day Simple Moving Average (SMA) in the chart below at $75.74 just hovering above it, makes that region very difficult to break through. Once snapping above there, the 200-day SMA at $77.12 should refute any further upticks.
On the downside, old resistances have turned into supports. First is the 55-day SMA at $72.73, which acts as a potential first line of defence in case of any retreat. A bit further down, $71.46 comes into play as second support before looking back to the $70.00 big figure and $67.11 as ultimate support for traders to buy the dip.
US WTI Crude Oil: Daily Chart
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.
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