Fundamental Outlook for WTI

WTI Oil has had a successful week and is on track to post its biggest weekly rise since March. Russian oil export prices have been capped, and OPEC+ has announced intentions to cut production by 2 million BPD starting in November. The OPEC+ move has raised eyebrows, especially in the US, which interprets it as backing for Russian President Vladimir Putin. As a result, there have been reports that Venezuelan sanctions may be loosened to allow oil to flow to Europe and the US.

This week’s WTI rise led numerous experts to boost their forecast for oil prices to return to $100 or more per barrel in the fourth quarter, which appeared improbable only ten days before. As a result of these events, US President Joe Biden has acknowledged that a drawdown from the country’s strategic oil reserves cannot be ruled out. As the US President anticipates the US midterm elections, it is hoped that such a release would help to moderate the recent price increase.

Adverse Risks

On the other hand, the US Federal Reserve’s projected path of rate increases poses the greatest threat to rising oil prices. The markets anticipated the possibility of a Fed policy change earlier in the week, but as the week went on, this expectation dwindled. Over the week, several US Federal Reserve officials spoke with us, reiterating the need for more rate increases. Fed policymaker Charles Evans said that 4.5% to 4.75% in rate increases by spring are possible, but the central bank still has a ways to go.

The Fed’s hawkish stance going into its November meeting might be further strengthened by robust NFP Jobs data, which is scheduled for release later today. WTI may face difficulties as it attempts to return to $100 per barrel due to more rate increases and restrictive monetary policy.

October 7, 2022, WTI Oil Daily Chart

As we get closer to the crucial $90.00 psychological threshold, WTI has broken and closed above the 50-SMA from a technical standpoint. The price earlier formed a double-top pattern before falling to $76.20, a hair’s breadth from its YTD lows, making the $90.00 mark important.

We are creating higher and lower highs daily, yet the current protracted uptrend may cause a short-term drop. This would be a pullback before it resumed its upward movement, with the 20-SMA perhaps acting as support. If the price is to rise to the $100 per barrel level, a sustained break above the $90.00 level is required. Oil prices might return to the $84.20 region, corresponding to the 20-SMA, if the $88.10 range is not maintained. Only a daily candle closing below the $79.60 region will invalidate the bullish structure on the daily timeframe.