August 11, 2022

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US Crude Oil: $90 May Depend on Non-Farm Payrolls Report, Not on OPEC

  • OPEC+ production decision expected but US employment report may be more important
  • No concessions on Fed rate hike if report remains strong
  • Higher rates will fuel the strength of the dollar, which puts its weight on oil
  • $90 May Not Hold If July and September Employment Beats Expectations

The exchanges of the Gulf countries are awaiting the usual fear of OPEC + announcing, during the day, the production quotas of 23 countries of the coalition led by the Saudis, and they are increasingly affected by Russia.

But no matter what the group decides, oil prices can be determined further by Friday.

The July Non-Farm Payroll (NFP) figure may well decide whether US crude will stay above $90 a barrel or fall to levels not seen since February 18.

Skcharting.com chart with Investing.com data

The report is particularly important for another reason as well: it could contribute to the Federal Reserve’s decision on the next interest rate hike in September.

Will it be a 75 basis point increase, as in July and June? Or from 50 like in May? Or even from the 25th, like March? The July report and the August report will help answer this question.

Stephen Innes of SPI Asset Management explains that concerns over Taiwan raised by Pelosi’s visit, as well as Fed officials’ confirmation of the decision to continue raising interest rates, continue to weigh on markets on Wednesday, including the oil market. He adds:

“Apart from the potential risk of a change in OPEC+ production policy, oil traders remain focused on aggregate data, particularly those related to the world’s two largest oil consumer economies, the United States and China.”

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US crude fell 5% on the first trading day of this week, after data showed that Chinese factory activity contracted in July due to the COVID shutdown.

The OPEC + meeting has an important aspect. This will be the first time the alliance has met since it canceled the historic cuts of about 10 million barrels per day that were set in April 2020. They are therefore at a crossroads in terms of production.

It has already decided to raise it by 50% from June levels to nearly 650,000 barrels per day for July and August. This was before President Joseph Biden went to Saudi Arabia last month, raising expectations that the coalition could do more.

But there is a high-profile chess game going on between Saudi Arabia and Russia about how much to do (or not do) for the United States in terms of production.

The Russian president is determined not to allow the United States to benefit in any way from the war in Ukraine.

Less than a week after Biden’s visit, Putin listened to Crown Prince Mohammed bin Salman to remind him of the importance of continued cooperation between the two countries in the spirit of OPEC+.

All of these factors (US employment data, Fed rate hike, dollar level and OPEC+ production) affect the price of oil.

At the time of writing, the global benchmark, the, stands at $100.19, down from a June high of more than $125 and post-invasion Ukraine of nearly $140 in March.

But the West Texas Intermediate (WTI) is fluctuating just above $94, compared to the June peak of over $123 and the March peak of over $130.

daily oil

The charts show that WTI is likely to fall to $82 if it breaks the major support at $93, says Sunil Kumar Dixit, head of technical strategies at skcharting.com.

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“A break of the exponential moving average of $93.16 exposes WTI to horizontal support areas of $88, $85 and ultimately $82.”

As for Dixit, WTI is currently heading for its third week lower, with weekly stochastic readings at 47/55 and the RSI dropping from 73 to 59.

weekly oil

According to him, a short-term recovery supported by the 50-week moving average at $93.16 could push WTI towards $96.40 and $98.30.

“A daily and weekly close above $98.30 may push US crude to retest the 50-day moving average at $102.90 and the 100-day simple moving average at $106.20.”

“But the broader outlook is for a decline towards $88-85-82 over a long period of time.”

NB: Barani Krishnan uses a variety of opinions as well as his own to bring about diversity in his analysis of each market. Out of impartiality, it sometimes displays opposite opinions and market variables. He has no position on any of the commodities or assets he writes about.