Oil prices under pressure, but bullish catalysts emerge

WTI crude oil futures in December are rising towards the end of Thursday but struggling to move higher this week. Price action has been volatile all week, especially today as traders were asked to deal with an aggressive Federal Reserve rate hike from the previous day, poor trading in the US dollar due to intervention by the Bank of Japan and lower than expected interest rate hike through the Bank of England.

As the dust finally settled, the prospect of higher Chinese demand and geopolitical risks fueled by an escalation of the war in Ukraine proved to be strong bullish catalysts.

Demand for crude oil in China picks up after strict COVID-19 restrictions are lifted

At least three Chinese state oil refineries and a private mega-refinery are considering raising 10% from September into October, bearing in mind stronger demand and a potential increase in fuel exports in the fourth quarter, those in the know, Reuters reported.

Chinese refiners expect Beijing to release 15 million tons of oil export quotas for the rest of the year in support of the no. 2 economy slumps exports. Such a move would revolutionize China’s oil export policy, increase global inventories and depress fuel prices, Reuters said.

Traders Watch Supply Disruptions as Russia Begins Mass Call for War

Oil prices are supported on Thursday after Russia went ahead with its biggest…

WTI crude oil futures in December are rising towards the end of Thursday but struggling to move higher this week. Price action has been volatile all week, especially today as traders were asked to deal with an aggressive Federal Reserve rate hike from the previous day, poor trading in the US dollar due to intervention by the Bank of Japan and lower than expected interest rate hike through the Bank of England.

As the dust finally settled, the prospect of higher Chinese demand and geopolitical risks fueled by an escalation of the war in Ukraine proved to be strong bullish catalysts.

Demand for crude oil in China picks up after strict COVID-19 restrictions are lifted

At least three Chinese state oil refineries and a private mega-refinery are considering raising 10% from September into October, bearing in mind stronger demand and a potential increase in fuel exports in the fourth quarter, those in the know, Reuters reported.

Chinese refiners expect Beijing to release 15 million tons of oil export quotas for the rest of the year in support of the no. 2 economy slumps exports. Such a move would revolutionize China’s oil export policy, increase global inventories and depress fuel prices, Reuters said.

Traders Watch Supply Disruptions as Russia Begins Mass Call for War

Oil prices are supported on Thursday as Russia continued its largest military mobilization since World War II.

President Vladimir Putin’s order to mobilize another 300,000 Russians to fight is escalating a war that has already killed thousands, displaced millions, pulverized cities, damaged the global economy and revived the Cold War confrontation, according to Reuters.

Putin’s move has driven some weak shorts out of crude oil while drawing the attention of just enough bullish speculators to offer support.

There has not been a rally per se, as so far the event has not resulted in a supply disruption. Bullish traders are betting that world leaders will come together to negotiate some sort of deal that will once again limit the amount of Russian oil entering the open market. Any agreements that lead to a supply disruption could trigger the start of a strong rally.

One such factor that could launch a rally is a price cap. According to Reuters, the European Union is considering an oil price cap, tougher restrictions on high-tech exports to Russia and more sanctions against individuals, diplomats said, in response to what the West denounced as an escalation in the Moscow war in Ukraine.

OPEC+ production miss points to tight supply situation

OPEC+ missed 3.583 million barrels per day (bpd) on its oil production target in August, and an internal document showed it missed its target by 2.892 bpd in July, Reuters reported. Prices shot up on the news early in the week as it signaled an underlying tight supply.

In related news, the deadlock over a revival of Iran’s nuclear deal also keeps that country’s exports from making a full return to the market. See if the price of crude oil pulls back if the deal goes through.

When crude was trading near the $110 level, the Biden administration was eager to close this deal. With oil prices down more than $30 from their highs for the year, the US government doesn’t seem all that interested in getting the deal done.

Weekly Technical Analysis

Weekly December WTI Crude Oil

WTI

Trend Indicator Analysis

The main trend is downward. A trade to $80.48 signals a resumption of the downtrend. A move through $95.55 will change the main trend upward.

The minor trend is also down. If you take out $88.83, the minor trend changes to up. This will also shift momentum towards the upside.

Retracement Level Analysis

The main range is $60.20 to $110.78. The market is currently trading within its retracement zone at $85.49 to $79.52.

The small range is $95.55 to $80.48. The 50% level at $88.02 is resistance.

The short-term range is $110.78 to $80.48. If the main trend is up, look for a test of the retracement zone at $96.78 to $100.08.

The contract range is $34.75 to $110.78. The $72.77 to $63.79 retracement zone is the next big downside. Buyers will likely come in to test this area as it represents value.

Weekly technical forecast

The direction of the December WTI crude oil market in the week ending September 30 is likely to be determined by the trader’s response to the key 50% level at $85.49.

bearish scenario

A sustained move below $85.49 points to the presence of sellers. This could lead to a quick break to the small bottom at USD 80.48, followed by a 61.8% main level at USD 79.52. Look for a technical bounce against the trend in the first test of this level.

The $79.52 Fibonacci level is also a potential trigger point for an acceleration downward, with the first targeting the 50% level of the contract at $72.77. Look for buyers against the trend in the first test of this level.

Bullish scenario

A sustained move above $85.49 will signal the presence of buyers. This could lead to a quick test of the small spindle at $88.02. Followed by the small top at $88.83. Catching up with this level indicates that the rally is getting stronger in the near term. If this move generates enough upward momentum, look for a rise towards the main top at $95.55.

Short-term outlook

I don’t think it’s a coincidence that oil prices have been under pressure since the Fed started raising interest rates aggressively this summer. It is therefore no surprise that prices are still close to the lows reached on February 24 at the start of the war in Ukraine.

The Fed is doing its job by trying to bring down high asset prices. While this may have contributed to a lower crude oil price, the charts suggest the market will be supported until there is a prolonged hiatus below the lows of the war in February.

On Wednesday, the Fed raised its benchmark rate by another 75 basis points and pledged to continue raising rates until the inflation battle is won. In addition, the Fed warned there will be “pain,” suggesting the economy will weaken.

The US dollar spiked to a new 20-year high this week, which could weigh on foreign demand for dollar-denominated crude. In addition, the yield curve has inverted, which is a traditional indication of a recession.

With a myriad of central banks aggressively raising interest rates, it seems inevitable that the world’s crude oil and fuel demand will eventually decline, but this assessment is all about demand.

Those asking for lower prices due to a recession may have forgotten that supply is also part of the equation. So while concerns about demand may limit profits. Concerns about a supply disruption due to the escalation of the war are likely to provide support. This supports our idea of ​​a range-bound trade.

Technically, our rating will take a hit if $79.52 is swept away by a wave of heavy selling pressure. However, a move above $85.49 will strengthen our case for a war-driven short-term rally.

Look for the downward tendency to expand below $79.52 but an upward tendency to develop on a sustained move above $85.49.

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