OIL PRICE FORECAST:
Oil prices failed to maintain its momentum this week with a sharp selloff yesterday continuing through the Asian and European sessions today. US stockpile numbers released yesterday evening from the American Petroleum Institute (API) showed a buildup of 1.837 million barrels compared to 0.939 million barrels last week. Is the growth in inventory growth an indication of a possible slowdown in demand as well?
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How to Trade Oil
RED SEA SUPPLY INTERRUPTIONS
The tensions around the Red Sea shipping corridor have seen mixed reports over the past few days. This started with the supposed Red Sea task force which at this stage seems to be on its knees before it began. The alliance members, notably Spain and Italy have both tried to distance themselves through statements with many countries the Pentagon claim is involved seemingly shy to confirm their participation.
According to the Pentagon the force is a defensive coalition of more than 20 Nations to combat the rising attacks by the Houthis in Yemen in response to the Israel/Palestine conflict. The lack of commitment by some Nations comes as international pressure continues to ramp up regarding the death of 21000 people in the Gaza strip, with President Biden believing the response in the Red Sea needs to be separated from these attacks. According to David Hernandez, a professor of international relations at the Complutense University of Madrid “European governments are very worried that part of their potential electorate will turn against them”. Saudi Arabia and United Arab Emirates earlier proclaimed no interest in the venture.
Denmark’s Maersk MAERSKb.CO will sail almost all of its vessels travelling between Asia and Europe through the Suez Canal, while diverting only a small number around Africa. A detailed breakdown showed that while Maersk had diverted 26 of its own ships around the Cape of Good Hope in the last 10 days or so. For now, it appears the Suez Canal will be used with more than 50 Maersk vessels scheduled to use the route in the coming weeks.
LOOKING AHEAD TO THE REST OF THE WEEK
Looking to the rest of the week and the Geopolitical risk is likely to be the key driver and the most important risk to pay attetion to. Later today however we do have the EIA releasing its numbers with a print of around -2.85 million expected.
TECHNICAL OUTLOOK AND FINAL THOUGHTS
From a technical perspective WTI did appear to break the long-term descending trendline on Tuesday but the pullback since leaves e questioning whether it was a false breakout. As things stand the Daily candle could provide hope today, with a hammer candlestick close likely to embolden bulls tomorrow and heading into the New Year.
Immediate resistance to the upside lies around the 75.00 mark before recent highs around the 76.00 handle comes into focus. There is a lot of hurdles to cross before the $80 a barrel mark comes into focus with resistance at 76.78, 77.84 and 78.55 all likely to provide some resistance.
WTI Crude Oil Daily Chart – December 28, 2023
Key Levels to Keep an Eye On:
IG CLIENT SENTIMENT
IG Client Sentiment data tells us that 84% of Traders are currently holding LONG positions. Given the contrarian view to client sentiment adopted here at DailyFX, does this mean we are destined to revisit the $70 mark?
For a more in-depth look at WTI/Oil Price sentiment and how to use it, download the free guide below.
of clients are net long.
of clients are net short.
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
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Breaking News: Red Sea Reports and EIA Numbers Cause Oil Prices to Plummet
In recent months, the global oil market has been rocked by a series of events that have sent shockwaves through the industry. From the ongoing COVID-19 pandemic to geopolitical tensions, oil prices have been extremely volatile, causing major fluctuations and uncertainties for both producers and consumers. However, the latest development that has sent the oil market into a tailspin is the combination of the Red Sea reports and the EIA (Energy Information Administration) numbers, which have caused oil prices to plummet. In this article, we will dive deep into this breaking news and explore the reasons behind it, along with its potential impacts on the global economy.
Introduction to the Red Sea Reports
On March 23rd, 2021, the Suez Canal, one of the world’s busiest trade routes, was blocked by the container ship “Ever Given,” causing a massive traffic jam that held up billions of dollars in goods. The incident, which lasted for almost a week, disrupted over 10% of global trade and caused a backlog of more than 400 ships. The ship, which was stuck diagonally across the canal, was finally freed on March 29th, but not before causing significant damage to the global oil market.
The reason behind this damage was that the Suez Canal is a crucial route for oil shipments, with an average of 1.74 million barrels per day passing through it. This means that the blockage caused a delay of around six days in oil shipments, resulting in losses of around 12 million barrels of crude oil per day. With this significant reduction in supply, oil prices saw a sharp decline, causing major concerns for the global economy.
EIA Numbers and Their Impact on Oil Prices
In the wake of the Red Sea reports, the EIA released its latest oil inventory report for the week ending March 26th, 2021. The report showed a much larger-than-expected increase in crude oil inventories by 3.9 million barrels. This was in stark contrast to the previous week’s report, which showed a decline in inventories by 900,000 barrels. This drastic increase in inventories was attributed to the Suez Canal blockage, which had caused a backlog in oil shipments.
The EIA also reported a significant decrease in gasoline inventories by 1.7 million barrels, along with a decrease in distillate inventories by 300,000 barrels. This was primarily due to the ongoing pandemic, which has led to a decline in gasoline and diesel demand. The EIA report also showed a decrease of 300,000 barrels per day in domestic crude oil production, which has been impacted by severe weather conditions in the United States.
Impacts of Plummeting Oil Prices
The combination of the Red Sea reports and the EIA numbers has had a severe impact on oil prices, causing them to plummet to their lowest levels in weeks. Based on the EIA report, West Texas Intermediate (WTI) crude fell by $2.08 to $59.60 per barrel, and Brent crude fell by $2.15 to $62.47 per barrel. These figures represent a decrease of around 3.3% and 3.3%, respectively, from the previous day’s closing prices.
One of the immediate impacts of plunging oil prices is on the oil-producing countries, which heavily rely on oil exports to fuel their economies. With lower oil revenues, these countries may struggle to meet their budgets, causing potential economic instability and social unrest. On the other hand, oil-importing countries may benefit from lower oil prices, as it reduces their energy costs and allows them to free up funds for other essential investments.
Another significant impact of plummeting oil prices is on the global stock markets. Oil prices have a direct impact on the energy sector, and a sudden dip in oil prices can cause major disruptions in the stock market. This was evident in the latest stock market downtrend, with the S&P 500 energy sector falling by over 2% in the aftermath of the Red Sea reports and EIA numbers release.
Practical Tips and Steps to Take
For businesses and individuals, the sudden decline in oil prices can present both opportunities and challenges. Here are a few practical tips and steps that can be taken to navigate through this period of uncertainty:
1. Monitor the Market: Keep a close eye on the oil market and stay updated on the latest developments that could impact oil prices. This will help you make informed decisions regarding your investments and budget planning.
2. Diversify Your Portfolio: In times of economic uncertainty, it is crucial to diversify your investments to mitigate risks. Consider diversifying into other sectors, such as technology and healthcare, to balance out potential losses in the energy sector.
3. Take Advantage of Lower Fuel Prices: With lower oil prices, this is an excellent opportunity for businesses and individuals to negotiate better fuel prices and save on expenses. Consider locking in long-term contracts with fuel suppliers to take advantage of lower prices.
4. Focus on Efficiency: With lower energy costs, now is the perfect time to invest in energy-efficient technologies and processes. This will help reduce your energy consumption and lower your energy costs in the long run.
In conclusion, the combination of the Red Sea reports and the EIA numbers has had a significant impact on the global oil market, causing prices to plummet. While this comes with its own set of challenges, it also presents opportunities for businesses and individuals to capitalize on lower energy costs and diversify their investments. It is essential to closely monitor the market and take proactive measures to navigate through this period of economic uncertainty.