Oil Outlook: Bulls find some relief

WTI traders may have noticed the recovery of oil prices since the beginning our last report. In the current report we intend to have a look at the state of the US oil market, yet also on an international level, discuss factors on the demand and supply sides that drive oil prices. To conclude the report we will also provide a technical analysis of WTI’s daily chart.

Oil: Overview Report

Pickup in the US oil market provides relief for the bulls

The state of the US oil market seems to have changed slightly. Characteristically the number of active oil rigs in the US increased by five, according to Baker Hughes from 506 to 511, thus reaching figures last seen in March.

The increase of active oil prices seemed to imply an increase in demand from the US oil market and thus may have a bullish effect on prices should it continue on its current trajectory. Furthermore, we note that US oil reserves have decreased according to the American Petroleum Insitute. The decrease in inventories, which was reported was not immaterial, as it ended two weeks of increases and came in at roughly -3 million barrels.

Also, EIA reported a decrease of US oil reserves, further indicating an increase in demand, as a significant drawdown of -6.368 million barrels was reported.

Overall the data mentioned, tend to highlight that oil production levels, have fallen behind the recent increase in aggregated demand for the commodity, which could be viewed as a bullish indicator for oil prices. Should we see the data regarding the US oil market show a continuance of the uptick in demand, we may see them having a bullish effect on prices.                   

Ukrainian strikes on Russian oil depots, heighten supply chain worries

Ukraine has engaged in a campaign against Russian energy interests, having struck eight Russian regions which set ablaze a fuel depot and struck three power substations this past Saturday. Furthermore, the most recent attack by Ukraine came on Wednesday morning, which according to the BBC  resulted in fires breaking out at “multiple oil depots in Russia”.

The continued aerial campaign against energy infrastructure in Russia, could lead to a supply chain crunch of oil flowing into Europe. Therefore, should significant and irreparable damage be done to Russia’s oil production or refining abilities, it could reduce the Russian oil supply into the markets, thus potentially leading to higher oil prices.

Yet for now, the true impact from the Ukrainian strikes have yet to be seen and as such may be not as influential in guiding the price.

Namibia discovers significant light oil columns

Per Reuters, Portuguese oil company Galp Energia stated on Sunday that it had concluded the first phase of exploration in the Mopane field off the coast of Namibia and is estimating that the field may contain at least 10 billion barrels of oil.

The recent discovery appears to be significant as the most recent comparison was the discovery of over 11 billion barrels of oil in Guyana, thus the newly found supplies could potentially impact in the future. The future increase of oil supply in the market could potentially weigh on prices, as the influx of newly discovered oil into the market, may lead to supply exceeding demand.

However, according to the report by Reuters, OPEC+ is eyeing Namibia for a possible membership, as it could potentially be Africa’s fourth largest output in the next decade. In such a scenario, OPEC+ could recoup its control over the oil markets, following Angola’s decision to leave the oil cartel earlier this year.

As such, should Namibia decide to join OPEC+, it could instead provide support for oil prices, as it would allow the bloc to further control the global oil supply.

Upcoming releases and fundamentals

Also we would like to note the easing of market worries for the Middle East, that may have clipped any further advances prices in the past few days. Yet the situation remains fragile for the time being and any further escalation of the conflict in Israel could have a bullish effect on oil prices once again.

Furthermore, we note the release of the US ISM and China’s PMI figures for the manufacturing sector. A possible faster expansion of economic activity in the manufacturing sectors of the US and China could have a bullish effect on oil prices as it would imply a wider demand for the commodity.

Also we note that USD bulls seem about to regain control and should the greenback gain ground against its counterparts it could make the import of oil for net-consuming economies more expensive, thus having a negative effect on the commodity’s price on a structural level.

Oil: Technical Analysis

WTI Daily Chart

• Support: 80.95 (S1), 76.55 (S2), 71.50 (S3)
• Resistance: 85.85 (R1), 89.60 (R2), 93.50 (R3)

WTI appears to be moving in a sideways fashion. We maintain a sideways bias for the commodity and supporting our case us the RSI Indicator below our chart which currently registers a figure of 50, implying a neutral market sentiment.

Yet, we should note that our upwards-moving channel which was incepted on the 26    of December 2023, appears to have remained intact, with the commodity having bounced off the lower bound of the channel.

Nevertheless, for our sideways bias to be maintained, we would require the commodity’s price to remain bound within the sideways channel defined by the 80.95 (S1) support level and the 85.85 (R1) resistance line.

On the other hand, for a bullish outlook, we would require the commodity to continue to respect the upper and lower bounds of the upwards-moving channel, in addition to breaking above the 85.85 (R1) resistance line with the next possible target for the bulls being the 89.60 (R2) resistance line.

Lastly, for a bearish outlook, we would require a break below the 80.95 (S1) support level, with the next possible target for the bears being the 76.55 (S2) support line.

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