Crude Oil Price Battle
Crude Oil Price Battle, Today, prices dipped, ending a five-day gaining streak.
Crude prices fell approximately 1% as investors focused on China’s sluggish economic activity.
This reignited fears about a worldwide recession and plummeting global fuel consumption.
The recent rally in oil prices has been driven by a number of factors, including falling inventories in the
US, production cuts by OPEC+ countries, and improving economic data from major economies such as the
Analysts of the US and China say the elements to monitor crude oil prices this week will be demand
indications for major economies and the United States’ reaction to OPEC+’s agreement to cut quotas.
Topics
The Battle
The cut is bullish
Slowing down
The Battle
Brent crude was trading at 97 dollars per barrel in intraday trade,
while WTI crude prices were around 91 dollars and 80 cents per barrel.
Despite the dip in price, both Brent and WTI are up for the week so far.
The overall trend for oil prices has been positive this month,
with both Brent and WTI climbing steadily since early October.
The Organization of the Petroleum Exporting Countries (OPEC) and their non-member state allies,
known as OPEC+, announced last week that they will cut output by
2 million barrels per day by November.
This is in response to a projected global economy and energy recession,
but it scared a market where supplies are already tight.
West Texas Intermediate, the U.S. benchmark for oil prices,
rose 16% last week to settle at $92.64 per barrel on Friday in reaction to this news.
This announcement from OPEC+ has caused quite a stir in the market and
investors will be watching closely this week to see how things develop with the Crude Oil inventory report coming out.
OPEC agreed to cut production by 1.2 million barrels per day (BPD) from January 2019 in order to prop up prices.
Though the actual cut is expected to be around half that size,
since several members were already producing below their targets, it underlined worries about tight supplies.
Crude had previously been under pressure on fears of aggressive rate increases by the
Federal Reserve and other major central banks would spark a sharp global economic downturn.
The Cut is Bullish
Said Warren Patterson, head of commodities strategy at ING, in a Monday note.
“However, there is still plenty of other uncertainty in the market, including how
Russian oil supply evolves due to the EU oil ban and G-7 price cap,
as well as the demand outlook gave the deteriorating macro picture.”
Although, Crude oil prices continued to rise on Friday,
with Brent crude trading at 97 dollars per barrel and WTI crude prices at 91.80 Dollars per barrel,
the increase was driven by a weaker US dollar and a stronger appetite for risk.
According to CME Group preliminary data, traders added 706 contracts to open interest holdings on Friday.
This marks the fourth consecutive day of gains in open interest, the volume also increased, rising by around 485.5K contracts.
These trends suggest that market participants are bullish on crude oil prices in the near term,
with the US dollar expected to remain weak and global economic growth remaining strong,
there is potential for further upside in crude oil prices in the coming days.
Slowing Down
As the global economy continues to stagnate,
investors are becoming increasingly concerned about the likelihood of a global recession.
Oil consumption is one of the important indicators that investors are following since it is a reliable gauge of global economic activity.
Unfortunately, news from China, the world’s largest oil importer,
was not promising on Monday, as statistics indicated that the Chinese economy is also slowing.
Oil prices fell as a result, with Brent crude futures falling 1.1% and West Texas Intermediate crude falling 1%.
While this news may be concerning in the near term,
it is critical to note that China still has good fundamentals and is likely to develop at a healthy rate in the long run.
Other reasons for boosting oil prices include constrained supply and rising demand from growing nations such as India.