Lots of Bearish News sends oil prices lower

US West Texas Intermediate crude oil futures traded lower Friday after breaking sharply from their intraday highs earlier in the session. Prices were weighted by concerns that a new rise in COVID-19 cases in Europe would threaten to slow the economic recovery. A jump in the US dollar also weighed on demand forecasts, while a potential release of crude oil reserves from larger economies raised concerns about large supply.

Perhaps contributing to the early volatility is the expiration of the December WTI futures contract and the transition to the January WTI futures contract.

New concerns over European economic recovery as Austria reintroduces full lockdown

Austria will be the first country in Western Europe to reintroduce a full coronavirus lockdown this fall to tackle a new wave of infections, and will require the entire population to be vaccinated from February, the government said Friday.

With cold weather across Europe, governments have been forced to consider reintroducing unpopular lockdowns against continued COVID-19 transmission. Austria imposed a lockdown on those not fully vaccinated on Monday, but since then infections have continued to set new records. The Netherlands is now partially locked with bars and restaurants closing at 01:00 GMT.

With new COVID-19 cases expected to spread across Europe, crude oil traders are already starting to price the possibility of destroying demand due to economic …

US West Texas Intermediate crude oil futures traded lower Friday after breaking sharply from their intraday highs earlier in the session. Prices were weighted by concerns that a new rise in COVID-19 cases in Europe would threaten to slow the economic recovery. A jump in the US dollar also weighed on demand forecasts, while a potential release of crude oil reserves from larger economies raised concerns about large supply.

Perhaps contributing to the early volatility is the expiration of the December WTI futures contract and the transition to the January WTI futures contract.

New concerns over European economic recovery as Austria reintroduces full lockdown

Austria will be the first country in Western Europe to reintroduce a full coronavirus lockdown this fall to tackle a new wave of infections, and will require the entire population to be vaccinated from February, the government said Friday.

With cold weather across Europe, governments have been forced to consider reintroducing unpopular lockdowns against continued COVID-19 transmission. Austria imposed a lockdown on those not fully vaccinated on Monday, but since then infections have continued to set new records. The Netherlands is now partially locked with bars and restaurants closing at 01:00 GMT.

With new COVID-19 cases expected to spread across Europe, crude oil traders are already starting to price the possibility of destroying demand due to economic downturns.

Strong US dollar weighs on foreign demand

The US dollar traded higher against a basket of major currencies on Friday, led by a dip in the euro. As crude oil is an asset in dollars, the rise in the dollar dampened demand from foreign currency holders.

The euro traded significantly lower against the US dollar on Friday after European Central Bank President Christine Lagarde said eurozone inflation would slow, so the ECB should not tighten policy as it could stifle the recovery, suggesting continued bond purchases next time. years, Reuters reported.

“When inflationary pressures are expected to ease – as is the case today – it does not make sense to react by tightening policies,” she said. “The tightening will not affect the economy until the shock is already over.”

Threat of increased supply that weighs on the mood

The threat of rising supply also contributes to the fall in crude oil prices, but not as much as the media thinks.

According to Reuters, the Biden administration on Wednesday asked some of the world’s largest consuming nations – including China, India and Japan – to consider releasing crude oil prices in a move that they believe will push prices.

Although prices fell in response to the news, some believe the move was politically motivated and in retaliation for OPEC +’s rejection of repeated requests from Washington to accelerate their production increases.

“We are talking about the symbolism of the largest consumers in the world sending a message to OPEC that ‘you need to change your behavior,'” one of the sources told Reuters.

An unprecedented challenge for OPEC

The current proposal represents an unprecedented challenge for OPEC, the cartel that has been impacting oil prices for more than five decades because it involves China, the world’s largest importer of crude oil.

According to the latest report from Reuters, China’s state reserve agency said it was working on a release of crude oil reserves, although it declined to comment on the US request.

Meanwhile, there may be a problem in Japan. According to Reuters, a Japanese Ministry of Industry official said the United States had requested Tokyo’s cooperation to deal with higher oil prices, but he could not confirm whether the request included coordinated release of stocks. By law, Japan cannot use reserve releases to lower prices, the official said.

Weekly technical analysis

Weekly January WTI crude oil

WTI

Trend indicator analysis

The main trend is upwards according to the weekly swing chart. Momentum, however, shifted to downward with the confirmation of the reversal in the closing price from the week ending October 29th.

A trade through $ 83.83 will lift the closing price reversal and signal a resumption of a downward trend. A move through $ 60.77 will change the main trend down.

The smaller trend is declining. The smaller trend changed to downward this week as sellers took the smaller bottom to $ 77.23. The move confirmed the shift in momentum to downward.

Analysis of retracement level

The smaller range is $ 60.77 to $ 83.83. The market is currently trading on the strong side of its 50% level at $ 72.30, making it the closest support.

The short term range is $ 55.30 to $ 83.83. Its 50% level at $ 69.57 is the best support. This price controls the market direction in the short term.

Additional support levels come in at $ 66.51, $ 61.04 and $ 57.93 to $ 51.81.

The targets for the retracement zone will move up as the market moves higher.

Weekly technical forecast

The direction of the WTI crude oil market in the December week ending November 26 will be determined by traders’ reaction to $ 79.69.

Bullish Scenario

A sustained move above $ 79.69 will indicate the presence of buyers. If this move is able to generate enough upward momentum, then look for a possible increase to $ 83.83. This is a potential trigger point for an acceleration to the upside.

Bearish Scenario

A sustained pull below $ 79.69 will signal the presence of sellers. This could create the downward momentum needed to complete a 50% correction of the August-October rally to $ 72.30.

Short-term prospects

If Biden thinks he can rally other countries to release enough oil to lower prices for an extended period of time, then he should fire his adviser. These countries, along with the United States, are releasing oil that is supposed to be used for emergency purposes. As this is not a real emergency, releases will be limited.

Moreover, if prices fall too far, too fast, OPEC and its allies will just stop increasing production to 400,000 barrels a day, as they have promised.

In my opinion, all the news this week is short-term bearish. As long as demand for crude oil continues to rise faster than supply, prices will remain supported. But the market can quickly become oversupplied

All of this could change if OPEC is right in its forecast that reduced world oil demand for the fourth quarter by 330,000 barrels per day (bpd) from last month’s forecast due to high energy prices that could hamper the recovery from COVID’s economic downturn. 19 pandemic.

In addition, COVID-driven demand destruction in Europe can help meet OPEC’s forecast much faster than expected.

If demand falls enough, OPEC and its allies may decide to suspend their plan to increase production by 400,000 bpd. If they do not take the step, oil supply could rise again and put pressure on prices in the first quarter of 2022.

Buyers may be looking for the “sweet” spot on the chart to re-establish long positions. That may be $ 72.30 this week.

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