- WTI on Course for Largest Weekly Gain Since March.
- US Discussing Possibility of Release From its Strategic Petroleum Reserves.
- 90.00 Psychological Level the Key for a Continued Rally.
Recommended by Zain Vawda
Get Your Free Oil Forecast
WTI Fundamental Outlook
WTI Oil has had a productive week with the commodity on course for its largest weekly gain since March. We have seen both a price cap on Russian oil exports as well as OPEC+ announcing plans to reduce output by 2 million bpd beginning in November. The decision by OPEC+ has ruffled feathers particularly in the US who see it as support for Russian President Vladimir Putin. In response we have heard rumors regarding the potential easing of sanctions on Venezuela to enable oil flows to Europe and the US.
WTI’s continued rally this week saw several analysts upgrade their outlook for oil prices back to $100+ a barrel for the fourth quarter, something which seemed unlikely only 10 days ago. These developments have seen US President Joe Biden acknowledge that a release from its strategic petroleum reserves cannot be ruled out. The hope is that such a release might mitigate the recent rise in prices as the US President looks ahead toward the US midterm elections.
Trade Smarter – Sign up for the DailyFX Newsletter
Receive timely and compelling market commentary from the DailyFX team
Subscribe to Newsletter
Downside Risks
On the flip side, the biggest risk to higher oil prices rests with the US Federal Reserve and their rate hike path moving forward. Earlier in the week markets were pricing in the potential of a pivot by the Fed, something which has waned as the week progressed. We have heard from several US Federal Reserve policymakers over the course of the week with all of them reiterating the need for further hikes. Fed policymaker Charles Evans stated that the central bank has some way to go on rate hikes with 4.5% to 4.75% likely by springtime. A strong NFP Jobs report which is due later today, could further strengthen the Fed’s hawkish position heading into its November meeting. Further rate hikes and restrictive monetary policy could pose a challenge for WTI as it looks to make its way back to $100 a barrel.
WTI Oil Daily Chart – October 7, 2022
Source: TradingView
From a technical perspective, WTI has broken and closed above the 50-SMA as we approach the key $90.00 psychological level. The $90.00 level is significant as price previously created a double-top pattern before declining to $76.20, a whisker from its YTD lows.
On the daily timeframe we are making higher highs and higher lows while the recent extended run to the upside could result in some pullback in the short-term. This would be nothing more than a retracement with the 20-SMA potentially providing support before continuing its move higher. A break above the $90.00 level needs to be a sustained one if price is to reach the $100 a barrel mark. Failure to hold above $88.10 area may push the price of oil back towards the $84.20 area which lines up with 20-SMA. The bullish structure on the daily timeframe will only be invalidated by a daily candle close below the $79.60 area.
| Change in | Longs | Shorts | OI |
| Daily | -9% | 20% | 2% |
| Weekly | -10% | 53% | 10% |
Resources for Traders
Whether you are a new or experienced trader, we have several resources available to help you; indicators for tracking trader sentiment, quarterly trading forecasts, analytical and educational webinars held daily, trading guides to help you improve trading performance, and one specifically for those who are new to forex.
Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda
