Changing circumstances for the oil market

Crude Oil’s price activity continued to be mild in the past days as the fundamentals surrounding the Oil market are currently capped. Through this report we will investigate some of the most dominant subjects currently driving the Oil market. Our aim is to help traders identify the matters that could move crude oil‘s price and form an understanding of the politics related to the industry.

In the previous days the weekly Oil metrics from the US were released once more providing a somewhat mixed up picture for traders to work with. During the previous Friday the U.S. Baker Hughes Oil Rig Count indicated active Oil rigs rose by 12 to reach 205, a possible indication of increased Oil demand. This is the highest increase in Oil rigs since August and is the second highest for 2020 which tends to provide some confidence in demand bouncing back. The American Petroleum Institute inventory report showed a small surplus of +0.58M barrels with the news being somewhat negative for the commodity’s price. Yesterday, the EIA U.S. Crude Oil Inventories showed a second consecutive weekly drawdown of -1M barrels yet being much lower than the previous -3M barrels. Overall and considering all three pre mentioned indicators we could say they provide mixed signals yet demand seems to have been able to absorb supply levels. It should be noted though that Oil prices presented a slight drop over the past 5 days.

On a separate note, updates from the Organization of the Petroleum Exporting Countries (OPEC) and its allies is of great interest to investors. Despite the group’s prior plans to increase Oil production during 2021, the outbreak of the pandemic with an increase in cases worldwide seems to be the reason for new adjustments. However, for the time being the group led by Saudi Arabia and Russia seems to be willing to take action if necessary due to the uncertain months ahead. The willingness to take necessary action to reverse the plans for a rise in production is still on the table, as the circumstances require the industry to be very flexible. Other members of the OPEC group seem to be mirroring the uncertainty in the Oil market also. During the previous days, the Iraqi oil ministerstated that oil projects in his country were stalling as a result of the OPEC plus deal to cut production. It was also said that Iraq was asked to cut production even further due to overproduction in the previous months. However, the most positive comment made by the minister was that they expect a recovery for the Oil market in the second quarter of 2021.

As a closure, many analysts around the globe support the idea that in the mid-months of the next year demand for Oil will rise. However, the expectations are based on the idea that the pandemic will be under control something that is seen distant, at the moment. With 40M confirmed virus cases globally and still rising we see further lockdowns being imposed for the time being. Yet with the current circumstances Oil producing companies and airlines seem to be in a very difficult spot with many possibly facing bankruptcy or asking for government support. Has the Oil market reached the bottom level yet? Is this a good opportunity to invest in the Oil market as the general market expectation is that demand will rise in the next year or so? These are valid questions that require further contemplation.

التحليل الفني

WTI h4 chart

We start by noting that WTI has been moving in a sideways motion between our (R1) 41.50 resistance level and our (S1) 39.75 support level since the 6th of October. The fact that these levels have kept the price activity between them, implies they are considerably strong. If the commodity is to head higher overtaken by a buying momentum, it could surpass the (R1) to test the (R2) 42.50 level. Even higher we have also noted the (R3) 43.50 line last seen on the 1st of September. On the contrary, a move downwards and potentially below the (S1), may send the commodity towards the (S2) 38.65 support level. Even lower, we have noted the (S3) 37.25 barrier which was last tested on the 5th of October. The RSI indicator below our four hour chart is running nearby the 50 level implying some traders may be uncertain over the commodity’s further direction.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

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