Oil has been the center of concern since November, stimulated by news and decisions from different parts of the world. Starting with the 4th quarter demand outlook of which the OPEC projected to supply 28.92 mb/d to feed up demand followed by the European sanctions on Russian oil by capping Russian oil price and finally the Chinese government’s conflicting decisions regarding zero covid policy. Since September’s 2022 close price at $85.30, Brent sustained the $86 support level in October and November where it had been trading between $80.85 and $99.5 and gave away 6.4% in November in response to the above market news.
Yesterday, the European market blocked an average of 1.5 million barrels of Russian oil supplies as the price cap sanction of $60/barrel takes effect. In reactions, Russia is diverting its shipments to China and India. Russia’s flagship Urals oil which contributes to 75% of Russia’s seaborn flows is trading around $52 a barrel ($8 below EU set cap) as per data gathered by Argus media Ltd which raises doubts on the effectiveness of the EU price cap sanctions on Russia given that the claimed objectives are to wane EU inflation caused by commodity soaring prices and harming the Russian government’s revenues thus tumbling its sustainable financing of the Ukrainian war. In Reaction, the Russian government announced that it will redirect its oil to “market-oriented partners”, ban oil exportation to country members sustaining the price cap and reducing production if needed.
With Covid cases surpassing 30,000, doubling from April’s 28,973 cases, China applied Zero covid policy, closing major industrial cities and obliging citizens to self-isolate in addition to expanding their testing efforts and building hospitals to quarantine excessive number of infected people. The widespread restrictions flared a sentiment of unrest in the country leading to protests, leveling up asking president Xi Jinping to step down. Lately, the Chinese government made progress towards reopening the economy by easing restrictions as it will bolster vaccinations among seniors.
The above events contributed to the OPEC+ December decision where the cartel members decided to maintain supply level. The decision came up after the group’s declaration of a 2000,000 barrels major supply cut in October which fired back from the white house. The cartel members backed up their decision in last Sunday’s meeting with the global economic uncertainty and Eurasia political tensions adding to this, investors are skeptical regarding global inflation levels spiking to higher levels once China declares opening the economy given that energy prices are contributing to approximately 40% of global headline inflation. Meanwhile, as stated by the OPEC, the cartel will be monitoring global oil demand and take necessary decisions when appropriate in favor of stabilizing prices. The announcement relates to the OPEC 2-million-barrel supply cut interference which maintained prices above the $80 levels.
Brent and WTI oil weekly chart analysis: The down trend momentum slowed down since w/o September 22nd where Brent is struggling to withstand a trading range direction. At the time this report is developed, Brent and WTI oil is trading below the 50-week exponential moving average and last week’s $83.46 for Brent and $76.53 for WTI open prices. Both Brent and WTI are somehow finding difficulty holding above 100-week exponential moving average levels at $85.4 and $81.75 respectively. Brent oil support levels are $80.86 followed by $78-$76. Resistance levels are $89.90 followed by $95-$97. WTI support levels are $73.62-$72.58 followed by $68.30, resistance levels are $8.30 followed by $88.90.
Source: Tradingview.com-Brent weekly chart Source: Tradingview.com-WTI weekly chart
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