Why Oil Prices Could Rise Next Week

U.S. West Texas Intermediate crude oil futures are trading higher on Friday after reports that OPEC and its allies will ignore President Biden’s request to increase supply at the week’s production meeting next. A weaker US dollar and stronger risk sentiment also provide support as the week ends.

Crude oil traders reacted positively to hopes that US monetary tightening would not be as hawkish as initially expected after disappointing economic growth figures were released on Thursday.

Another important event driving the price move is that first-month Brent futures are selling at an increasing premium to the deferred months in a market structure known as a pullback, indicating a tight current supply.

This is due to the tight supply situation in Europe due to sanctions against Russia and the slowdown in the supply of a key pipeline to Germany.

Chances of OPEC+ supply increase dwindle

The next price spike could come next week after the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies, known as OPEC+, on August 3.

OPEC+ sources told Reuters the group would consider keeping oil production unchanged for September, with two OPEC+ sources saying a modest increase would be discussed.

The decision not to increase production would hamper U.S. efforts to lower domestic gasoline prices after U.S. President Joe Biden visited Saudi Arabia this month in hopes of securing a deal…

U.S. West Texas Intermediate crude oil futures are trading higher on Friday after reports that OPEC and its allies will ignore President Biden’s request to increase supply at the week’s production meeting next. A weaker US dollar and stronger risk sentiment also provide support as the week ends.

Crude oil traders reacted positively to hopes that US monetary tightening would not be as hawkish as initially expected after disappointing economic growth figures were released on Thursday.

Another important event driving the price move is that first-month Brent futures are selling at an increasing premium to the deferred months in a market structure known as a pullback, indicating a tight current supply.

This is due to the tight supply situation in Europe due to sanctions against Russia and the slowdown in the supply of a key pipeline to Germany.

Chances of OPEC+ supply increase dwindle

The next price spike could come next week after the meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russia-led allies, known as OPEC+, on August 3.

OPEC+ sources told Reuters the group would consider keeping oil production unchanged for September, with two OPEC+ sources saying a modest increase would be discussed.

The decision not to increase production would hamper U.S. efforts to lower domestic gasoline prices after U.S. President Joe Biden visited Saudi Arabia this month in hopes of striking a deal to open the taps.

The general consensus among analysts is that it would be difficult for OPEC+ to increase supply, given that many producers are already struggling to meet production quotas.

Weak GDP puts pressure on the US dollar

The U.S. dollar traded lower against a basket of major currencies on Friday morning as traders continued to react to data showing the U.S. economy contracted again in the second quarter, fueling speculation that the Reserve federal government will not raise rates as aggressively as expected.

On the economic front, data showed Thursday that gross domestic product fell at an annualized rate of 0.9% in the second quarter. Consumer spending grew at its slowest pace in two years and business spending contracted, raising the risk that the economy is on the verge of a recession. Economists polled by Reuters had forecast GDP to rebound at a rate of 0.5%.

A weaker greenback tends to push up foreign demand for dollar-denominated crude oil.

Risk sentiment supports prices

Crude oil is rocked by improving risk sentiment as recession fears recede on continued US earnings optimism and less hawkish talk from the Fed on future rate hikes.

The US Federal Reserve on Wednesday raised its benchmark overnight interest rate by 75 basis points, in line with expectations, to combat runaway inflation, while Fed Chairman Powell added that the central bank would make rate hike decisions on a meeting-by-meeting basis. base.

Furthermore, the Fed also said that the US economy is not in a recession because “there are simply too many sectors of the economy that are performing too well.”

Powell’s comments suggesting slower progress weighed on the US dollar, boosting demand for dollar-denominated crude oil.

Falling stocks, rising exports for an extra boost

Traders are still reacting positively to the bullish government inventory report released on Wednesday, which found U.S. crude exports hit a record high last week. The move contributed to a further drop in inventories and was mainly driven by foreign demand due to the steep discount of US crude to international favorite Brent.

Crude inventories fell 4.5 million barrels to 422.1 million barrels in the week ended July 22, the U.S. Energy Information Administration said Wednesday, as the a decline of 1 million barrels was expected. The decline was largely the result of an increase in crude exports to a record 4.5 million barrels per day over the past week.

U.S. crude output also rebounded to 12.1 million bpd after two weeks of decline, rising 200,000 bpd to its biggest increase since December.

U.S. gasoline inventories also fell 3.3 million barrels on the week, and distillate inventories, which include diesel and heating oil, fell 784,000 barrels.

Weekly technical analysis

September WTI Crude Oil Weekly

Analysis of trend indicators

The main trend is up according to the weekly swing chart. However, the trend is down following the confirmation of the weekend closing price reversal high ending on the weekend of June 17th.

The minor trend is down. It turned lower three weeks ago when sellers pulled out the minor low at $99.66. This confirmed the change in dynamics. The new minor high is $111.14. A trade through this price will change the minor trend to the upside and shift the momentum up.

Retracement level analysis

The middle range is $60.99 to $118.08. Its retracement zone at $89.54 to $82.80 is support. This zone stopped selling at $88.23 on July 14th.

The main range is also the contractual range of $35.00 to $118.08. Its retracement zone from $76.54 to $66.74 is the main zone controlling the long-term direction of the market.

On the upside, the minor range is $111.14-$88.23. Its 50% level or pivot is a potential resistance at $99.69. The short-term range is $118.08-$88.23. Its retracement zone at $103.16 to $106.68 is the most important resistance area.

Weekly Technical Forecast

The direction of the September WTI Crude Oil market over the weekend ending August 5 will be determined by the reaction of traders to the minor 50% level at $99.69.

Bullish scenario

A sustained move above $99.69 will indicate the presence of buyers. If this move creates enough bullish momentum, look for a rally in the short-term retracement area between $103.16 and $106.68.

The main hurdle to a change in momentum and a resumption of the uptrend is $103.16-$106.68.

Downside scenario

A sustained move below $99.69 will indicate the presence of sellers. The removal of the two-week low at $88.23 and the minor low at $85.37 will indicate that selling pressure is building. This could lead to a test of the Fibonacci level at $82.80.

A failure to hold $82.80 will put the market in a weak position. This could extend selling into the major retracement zone at $76.54 to $66.74. This is the last potential support before the main low at $60.99. A trade through this level will change the main downtrend.

Short-term outlook

Crucially, the market could continue to receive support amid speculation that exports could continue to rise, thanks to a wide gap between US and international crude benchmarks, especially as Europe has cut prices. imports from its main supplier, Russia, following the invasion of Moscow. of Ukraine and subsequent sanctions against that nation. Some analysts also believe that we could be seeing more than 5 million a day. In other words, we may not have experienced peak oil globally.

Currently, the arbitrage or spread between Brent and US West Texas Intermediate crude oil futures has widened to over $9 a barrel.

“International refiners will go to the United States to fill up on American crude oil, as long as the arb is so wide that it covers the cost of carry,” said Robert Yawger, executive director of oil futures. energy at Mizuho.

Technically, despite the strengthening fundamentals, traders are still facing a wall of resistance from $99.69 to $106.68. So any gathering is likely to be a laborious event.