One Shock Shy of an Oil Price Spike – Technical Analysis

The average U.S. consumer currently spends over $50 more per month for gasoline than during the highly contested presidential election in November 2020. Oil and gasoline prices spiked immediately after the election. When Biden formally moved into the Oval Office in Jan. 2021, he signed off on a few dozen executive orders in a frenzy that decimated U.S. energy independence, dominance, and low prices at the pump. The average price of gasoline was $2.28 per gallon in Nov. 2020, $3.61 in Feb. 2022 when Russia launched its military operation, $5.02 when the U.S. Consumer Price Index (CPI) peaked at 9.1% YoY in Jun. 2022, and has fallen to $3.25 as of Dec. 2023. According to Kelley Blue Book research, a $1 increase in the price of a gallon of gasoline costs the average American driver $56 per month.

U.S. All Grades All Formulation Retail Gasoline Prices – EIA

U.S. All Grades All Formulation Retail Gasoline Prices – EIA

 

The narrative that Putin was responsible for higher gasoline prices is false because Russia’s military did not cross into Ukraine until late Feb. 2022. To counter inflationary fiscal and monetary policies of Bidenomics that eventually doubled the average price of gasoline, Biden authorized an unprecedented drawdown from the Strategic Petroleum Reserve (SPR). It is currently at 50% capacity vs. 90% when he took office. There were incremental releases for a total of 64.5 million barrels that were previously mandated in late fiscal-year 2020 through 2021, but Biden authorized an emergency drawdown of a whopping 180 million barrels in FY2022 and an additional 91 million in FY2023 to reach a low of 347 million in Jul. 2023. The SPR inventory stands at 355.5 this week. The small addition to SPR inventory since last summer is a blip in the data. It’s not a good place to be given the state of war the world is in.

U.S. Strategic Petroleum Reserve Inventory From 1982-2023

U.S. Strategic Petroleum Reserve Inventory From 1982-2023

 

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Crude oil is the world’s most significant energy source, and its price plays an important role in industrial and economic development. According to Goldman Sachs, the proportion of crude oil used for primary material production (plastics, medicine, cosmetics, etc.) is 45%. The most important type of oil used in Europe is Brent Crude light, named after the North Sea oilfield where it is extracted. Internationally, there are numerous types that vary in price, and each has its own properties due to geology. For trading futures in London and New York, reference oils are used and standardized to determine the price for all other types. Of major significance for the U.S. is West Texas Intermediate (WTI).

Numerous factors determine the price of oil for U.S. consumers, and the current confluence of world events along with conflicting analyst views are driving the price action. Influences include but are not limited to supply, demand, inventory, supply chains, weather, geopolitics, monetary policy, and the state of the U.S. economy. The good news is that the U.S. is producing more oil right now than any country in history following the unprecedented decline during the pandemic.

U.S. Oil and Natural Gas Production at Record Highs

Oil Market Caught by Surprise as U.S. Output Surges – FT, Dec. 2023

Red Sea risk to oil ‘very real,’ prices could change rapidly if supply disrupted, Chevron CEO says… “Wirth said he was surprised that U.S. crude oil was trading below $73 a barrel.” – CNBC, Jan. 16

 

IEA signals ‘substantial surplus’ of oil this year as demand growth slows… “The west’s energy watchdog has said the world could generate a ‘substantial surplus’ of oil this year as faltering economic growth hits demand and non-OPEC countries step up production to record levels. The International Energy Agency said a surge in output by countries such as the US might offset the impact of cuts by OPEC+, the oil exporters’ cartel, which is seeking to shore up prices… The IEA predicted demand would grow this year only by about half the pace of 2023… Despite continuing uncertainty over the Red Sea, one of the world’s key oil routes, prices were broadly steady.” – FT, Jan. 18, 2024

 

Oil Prices Climb on U.S. Production Outages and an Optimistic OPEC Report… “The American Petroleum Institute estimated a build in oil inventories that analysts did not expect, as the IEA said it expected lukewarm demand growth this year… The latest economic data from China appears to have disappointed oil analysts… News that oil output in North Dakota had fallen by between 650,000 bpd and 700,000 bpd (weather related) had a limited positive effect on prices as the outage should only last a few days… ‘If we don’t see any major geopolitical surprises, I expect this year a comfortable oil market, a more balanced oil market,’ the IEA said. Speaking of surprises, the conflict in the Middle East is showing no signs of letting up, with a fresh round of attacks on military targets in Yemen by the U.S. and an exchange of strikes between Iran and Pakistan.” – OilPrice.com, Jan. 18

It will only take one event with a shocking headline to launch oil into a rally amid the plethora of crises taking place. Here are a few more choice headlines from today:

  • “Fed’s Bostic cites possibility conflicts around the world could again complicate supply chains. Risk that U.S. budget fights and elections could affect economy and financial markets. I am open to starting rate cuts before July if there is convincing evidence that inflation is slowing faster than I anticipate.”
  • “U.S. strikes Houthi missile sites in Yemen on Thursday.”
  • “Biden says air strikes in Yemen will continue.”

Let’s move on to the WTI and Brent Crude charts to see what the price action looks like. Note that a technical analysis with a weekly candlestick chart focuses on potential near-term (a few weeks) trading opportunities for short-term swings or intraday scalps. To view a larger version of any chart below, mouse over it and select or right-click it and choose a “view image” option.

WTI Crude weekly chart as of Jan. 18, 2024…

WTI Crude Weekly Chart Jan. 18, 2024 - Technical Analysis by TraderStef

There is no significant pattern, and the current consolidation phase has been tight within a $3 range since Dec. 2023. Resistance is at the 50% Fibonacci level, and support rests at the red trendline. The price action remains below the 50 Exponential Moving Average (EMA), and the DMI-ADX is unremarkable while in a negative trend. The chart is neutral until the 50 EMA is breached in a bullish rally through the low to mid-$80s and the topside black trendline is taken out. The price turns bearish if it breaks below the red trendline at around $70 and challenges the spring 2023 low at $64.70.

Brent Crude weekly chart as of Jan. 18, 2024…

Brent Crude Weekly Chart Jan. 18, 2024 - Technical Analysis by TraderStef

Except for price points, the view on Brent Crude is nearly identical to WTI. There is no pattern to mention, and the price has been consolidating within a tight $6 range since Dec. 2023. Resistance is just below the 50% Fibonacci level at $81.76, and support is at the red trendline. The price action remains below the 50 Exponential Moving Average (EMA), and the DMI-ADX is unremarkable while in a negative trend. The chart is neutral unless the 50 EMA and topside black trendline are breached in a bullish rally through the low $80s. The price turns bearish if it breaks below the red trendline at around $73 and challenges the spring 2023 low at $70

Consider reading “Abiotic Black Gold” and stop parroting presstitutes that still describe petroleum as being a fossil fuel. Also, an interview by Tucker Carlson last week with Dr. Willie discussed that topic.

Roughest Neck Around – Corb Lund @CorbLund and the Hurtin’ Albertans

 

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One Shock Shy of an Oil Price Spike – Technical Analysis

One Shock Shy of an Oil Price Spike – Technical Analysis