Why oil prices could rise next week

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

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

Another key event driving price action is that front month Brent futures are selling at an increasing premium to the months back in a market structure known as backwardation, indicating tight current supply.

The reason for this is the tense supply situation in Europe due to the sanctions against Russia and the slower supply of an important pipeline to Germany.

Opportunities for OPEC+ supply boost Dim

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

OPEC+ sources told Reuters the group will consider leaving oil production unchanged for September, with two OPEC+ sources saying a modest increase is under discussion.

The decision not to increase production would dampen US efforts to slash domestic gasoline prices after US President Joe Biden visited Saudi Arabia this month in hopes of reaching a deal…

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

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

Another key event driving price action is that front month Brent futures are selling at an increasing premium to the months back in a market structure known as backwardation, indicating tight current supply.

The reason for this is the tense supply situation in Europe due to the sanctions against Russia and the slower supply of an important pipeline to Germany.

Opportunities for OPEC+ supply boost Dim

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

OPEC+ sources told Reuters the group will consider leaving oil production unchanged for September, with two OPEC+ sources saying a modest increase is under discussion.

The decision not to increase production would dampen US efforts to slash domestic gasoline prices after US President Joe Biden visited Saudi Arabia this month in hopes of reaching an agreement to open the pumps.

The general consensus among analysts is that OPEC+ would have a hard time increasing supply as many producers are already struggling to meet production quotas.

Weak GDP weighs on US dollar

The US dollar is trading lower against a basket of major currencies early Friday as traders continued to react to data showing the US economy contracted again in the second quarter, fueling speculation that the US Federal Reserve is not raising interest rates will increase as aggressively as previously expected.

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

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

Risk sentiment supports prices

Crude oil gets a jolt from improving risk sentiment as recession fears ease after continued US earnings optimism and less hawkish Fed talk about future rate hikes.

The US Federal Reserve on Wednesday raised its federal funds rate by 75 basis points as expected in a bid to fight scorching inflation, while Fed Chair Powell added the central bank will take rate-hike decisions on a meeting-by-meeting basis.

In addition, the Fed also said the US economy is not in recession because “there are just too many areas of the economy that are doing too well.”

Powell’s comments hinting at a slower trajectory weighed on the US dollar and boosted demand for dollar-denominated crude oil.

Decrease in inventories, increase in exports provides additional impetus

Traders are still reacting positively to the government’s bullish inventory report on Wednesday, which revealed US crude exports surged to an all-time high last week. The move contributed to a further fall in inventories and was mainly driven by overseas demand due to the big discount for US crude compared to the internationally popular Brent.

Crude inventories fell 4.5 million barrels to 422.1 million barrels in the week ended July 22, the US Energy Information Administration said on Wednesday, compared with expectations for a 1 million barrel decline. The decline was largely the result of a surge in crude oil exports to a record 4.5 million barrels a day last week.

U.S. crude oil production also rebounded to 12.1 million bpd after two weeks of decline, up 200,000 bpd, the biggest increase since December.

US gasoline inventories also fell 3.3 million barrels this week and inventories of distillates, including diesel and heating oil, fell 784,000 barrels.

Weekly technical analysis

Weekly September WTI Crude Oil

STI

trend indicator analysis

The main trend is up according to the weekly swing chart. However, momentum is leaning towards the weekend of June 17 after confirming the closing reversal high from weekend to weekend.

The small trend is down. It turned into a decline three weeks ago as the sellers pulled out the minor bottom at $99.66. This confirmed the shift in momentum. The new minor top is at $111.14. Trading above this price will change the minor trend up and shift momentum to the upside.

Retracement Level Analysis

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

The main range is also the contract range from $35.00 to $118.08. Its retracement zone at $76.54-$66.74 is the main area driving the long-term direction of the market.

On the upside, the small range is between $111.14 and $88.23. Its 50% level or pivot point is a potential resistance at $99.69. The short-term range is between $118.08 and $88.23. Its $103.16-$106.68 retracement zone is the key resistance area.

Weekly technical forecast

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

bullish scenario

A sustained move above $99.69 indicates the presence of buyers. If this move generates enough bullish momentum then look for a rally into the short-term retracement zone at $103.16-$106.68.

The key area standing in the way of a momentum shift and a resumption of the uptrend is between $103.16 and $106.68.

Bearish Scenario

A sustained move below $99.69 indicates the presence of sellers. Taking out the two-week low at $88.23 and the minor bottom at $85.37 suggests that selling pressures are picking up. This could lead to a test of the Fibonacci level at $82.80.

A failure to hold $82.80 will leave the market in a weak position. This could extend the sell into the major retracement zone at $76.54-$66.74. This is the last potential support before the major low at $60.99. Trading above this level will change the main trend down.

Short term outlook

In general, the market could continue to find support amid speculation that exports could continue to rise thanks to a wide spread between US and international crude benchmarks, particularly as Europe has scaled back imports from its main supplier Russia following the invasion of Moscow and Ukraine subsequent sanctions against that nation. Some analysts also believe we could be seeing more than 5 million a day. In other words, we may not have seen peak oil anywhere in the world.

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

“International refiners will go to the United States to load US crude as long as the arb is wide enough to cover transportation costs,” said Robert Yawger, Mizuho’s executive director of energy futures.

Technically, traders are still facing a resistance wall between $99.69 and $106.68 despite the strengthening fundamentals. Therefore, any rally is likely to be an arduous event.

Latest articles

Related articles

Leave a reply

Please enter your comment!
Please enter your name here