Crude Oil set for weekly loss as Fed cuts off any rally attempt
- Oil prices saw recovery attempts fail and edges lower for the fifth consecutive day on Friday.
- The hawkish tilt to only two rate cuts from the Fed in 2025 frightens investors of a very short-lived rally in commodities.
- The US Dollar Index hits a two-year high for a third day this week and faces profit-taking.
Crude Oil prices dips lower for the fifth consecutive day in a row on Friday. The mood soured overnight again as investors got concerned about the Federal Reserve’s (Fed) hawkish tilt, which could quickly kill off any economic boosts from the Trump administration. Meanwhile, President-elect Donald Trump warned Europe that if the region does not boost its Gas and Oil buying from the US to make good on its trade deficit with the country, it will face tariffs instead.
The US Dollar Index (DXY) – which measures the performance of the US Dollar (USD) against a basket of currencies – hit a fresh two-year high during the Asian trading session on Friday. The hawkish tilt from the Fed is pushing US Treasury rates higher, driving the wedge between US rates and other countries even bigger in favor of a more expensive US Dollar. Should the US Personal Consumption Expenditures (PCE) data come in higher than anticipated on Friday, the last two interest rate cut projections for 2025 could get priced out, resulting in an even higher US Dollar.
At the time of writing, Crude Oil (WTI) trades at $68.77 and Brent Crude at $71.98.
Oil news and market movers: Trump might have underestimated Europe
- President-elect Donald Trump has threatened the European Union with tariffs if its member countries don’t buy more American Oil and Gas, Bloomberg reports.
- China’s biggest refiner, Sinopec, said on Thursday that the nation’s gasoline demand peaked last year, adding to an already-weak outlook in the world’s top crude importer, Bloomberg reported.
- A group of seven nations are looking into ways to toughen sanctions on Russian Oil. Although there is no consensus yet on the next steps, options under consideration range from an outright ban to lowering the price cap to about $40 a barrel from the current $60, Reuters reports.
- At 18:00 GMT, the weekly Baker Hughes US Oil Rig Count is due. There are no expectations for this data, with the previous number at 482. The rig count is set to close off 2024 at rather low levels, seeing the peak in April around 511 rigs accounted for. Under Donald Trump’s previous presidency, at one point, the rig count amassed to 888 rigs.
Oil Technical Analysis: Look out for the fall
Crude Oil prices have attempted and failed to reach any upside above the $70.00 level. The risk now could turn into a squeeze, where sellers reduce their hedges for higher Oil prices and might set off a nasty correction in the Oil market. With a lot of Oil contracts set to expire under the so-called Quadruple Witching (each third Friday of March, June, September, and December, four types of financial contracts expire simultaneously: stock index futures, stock index options, stock options, and single stock futures), excess volatility could see Oil tank quickly to $67 in search of support.
Looking up, $71.46 (February 5 low) and the 100-day Simple Moving Average (SMA) at $70.82 act as firm resistance levels. If Oil traders can plow through those levels, the next pivotal level will be $75.27 (January 12 high). However, watch out for quick profit-taking as the year-end quickly approaches.
On the downside, the 55-day SMA at $69.90 has been chopped up too many times this week and has lost relevance for now. That means that $67.12 – a level that held the price in May and June 2023 and during the last quarter of 2024 – is still the first solid support nearby. In case that breaks, the 2024 year-to-date low emerges at $64.75, followed by $64.38, the low from 2023.
US WTI Crude Oil: Daily Chart
WTI Oil FAQs
WTI Oil is a type of Crude Oil sold on international markets. The WTI stands for West Texas Intermediate, one of three major types including Brent and Dubai Crude. WTI is also referred to as “light” and “sweet” because of its relatively low gravity and sulfur content respectively. It is considered a high quality Oil that is easily refined. It is sourced in the United States and distributed via the Cushing hub, which is considered “The Pipeline Crossroads of the World”. It is a benchmark for the Oil market and WTI price is frequently quoted in the media.
Like all assets, supply and demand are the key drivers of WTI Oil price. As such, global growth can be a driver of increased demand and vice versa for weak global growth. Political instability, wars, and sanctions can disrupt supply and impact prices. The decisions of OPEC, a group of major Oil-producing countries, is another key driver of price. The value of the US Dollar influences the price of WTI Crude Oil, since Oil is predominantly traded in US Dollars, thus a weaker US Dollar can make Oil more affordable and vice versa.
The weekly Oil inventory reports published by the American Petroleum Institute (API) and the Energy Information Agency (EIA) impact the price of WTI Oil. Changes in inventories reflect fluctuating supply and demand. If the data shows a drop in inventories it can indicate increased demand, pushing up Oil price. Higher inventories can reflect increased supply, pushing down prices. API’s report is published every Tuesday and EIA’s the day after. Their results are usually similar, falling within 1% of each other 75% of the time. The EIA data is considered more reliable, since it is a government agency.
OPEC (Organization of the Petroleum Exporting Countries) is a group of 12 Oil-producing nations who collectively decide production quotas for member countries at twice-yearly meetings. Their decisions often impact WTI Oil prices. When OPEC decides to lower quotas, it can tighten supply, pushing up Oil prices. When OPEC increases production, it has the opposite effect. OPEC+ refers to an expanded group that includes ten extra non-OPEC members, the most notable of which is Russia.