Oil drops from its two-week highs

Oil prices presented some wide fluctuations in the oil past week characteristic of the market’s sentiment for the international oil market. In this report, we aim to shed light on the factors driving WTI’s price over the past week, assess its future outlook and conclude with a technical analysis of WTI.

Iran’s call for an oil embargo on Israel

Iran’s Foreign Minister Amirabdollahian on Wednesday, called on members of the OIC to impose and oil embargo on Israel, amongst other demands. The request by Iran comes, following heightened tensions in the Middle East, which could lead to a widespread regional conflict with numerous actors. However, despite the request, OPEC according to sources cited by a Reuters  report, claimed that OPEC is not planning to hold an extraordinary meeting or preparing to take immediate action. Furthermore, the Secretary General of the Gulf Cooperation Council stated that “The GCC works as a clear and honest partner as an oil exporter with the international community and we can’t use that as a weapon in any way possible”.

The Secretary General’s statements, appear to be confirm the claims made previously by Reuters sources, that the council may not take immediate action. Thus, despite the temporary volatility, it appears that the likelihood of an oil embargo on Israel, which may have been hypothetically expanded to Western supporters of Israel, as was done in 1973, appears to not be the case at this point in time. On the other hand, should OPEC decide on an oil embargo against Israel, we may see heightened market volatility working in favor of the price of oil, as fears may rise about a potential embargo on further nations.

Lifting of sanctions on Venezuela?

The Biden administration on Wednesday, announced that it was easing oil sanctions on Venezuela. The oil producing nation was sanctioned back in 2017, where the US Government restricted trading of government bonds, including of state-owned oil firms, in the US financial markets. The sanctions continued, up until 2020 when secondary oil sanctions were placed on Venezuela. According to a report by Reuters , the US Government has temporarily lifted sanctions on the nation for the next 6 months, following an agreement  with President Maduro who agreed to hold presidential elections in the latter half of next year.

The temporary lifting of sanctions would essentially allow Venezuela to pump as much oil as they would like into the market for the next 6 months. As such, should we see an increase in the supply of oil into the markets, it may weigh on the price of the liquid gold and should the sanctions be lifted permanently, we may see a long-term increase in oil output from Venezuela. On the other hand, given the heavy impact of the sanctions on the country’s oil producing infrastructure, there may not be an immediate impact in the markets and as such the effects of the lifting of sanctions may be seen in the long run.

US production works overtime to meet oil demands.

According to CNBC, domestic oil production hit an all-time high last week, marking a full recovery from the COVID pandemic. According to the U.S Department of Energy, US Crude Oil production had hit an all-time high of 13.2 million bpd. The ramping up of domestic may impact oil prices, as an increase in supply could potentially weigh on the price of oil. In the event, that US domestic oil production continues, we may see the price of oil moving in a downwards fashion. However, should the increase in production prove to be temporary, we may see oil prices regaining steam and move in an upwards fashion.

Oil: Technical Analysis

WTI 现货4小时走势图

• Support: 83.50 (S1), 79.50 (S2), 75.00 (S3)
• Resistance: 86.95 (R1), 90.55 (R2), 93.60 (R3)

WTICash, appears to be moving in a downwards fashion. We maintain a bearish outlook for the commodity and supporting our case is the commodity breaking below the upwards moving trendline which was incepted on the 12    of October. However, the RSI figure on our 4-Hour chart, currently remains above the figure of 50, which may imply a residual bullish sentiment.

For our bearish outlook to continue, we would like to see a clear break below the 83. 50 (S1) support level, with the next possible target for the bears being the 79.50 (S2) support base. On the other hand, for a bullish outlook, we would like to see a clear break above the 86.95 (R1) and the 90.55 (R2) resistance levels, with the next possible target for the bulls being the 93.60 (R3) resistance ceiling. However, with the narrowing of the Bollinger bands which imply low market volatility, the commodity could move in sideways fashion. As such for a neutral outlook, we would like to see the commodity remaining confined between the 83.50 (S1) and the 86.95 (R1) support and resistance levels.

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