CRUDE OIL PRICE OUTLOOK:
- WTI crude oil prices pulled back slightly after surging 4.7% a day ago as Germany said Europe will continue to buy energy products from Russia
- Surging energy and raw material prices have stoked fears about stagflation, causing demand destruction
- Oil prices have rallied 30% in the last six trading sessions, rendering them vulnerable to a technical pullback
Crude oil prices stabilized at around $120 bbl during Tuesday’s APAC mid-day session, hovering near decade highs. Prices are primarily driven by the Ukraine war and the follow-on economic sanctions. The White House is considering banning oil and gas imports from Russia, a move that stoked market volatility and led to wide price swings on Monday.
Prices have pulled back after German ChancellorOlaf Scholz said that Europe has deliberately exempted energy suppliers from Russian sanctions as Europe’s supply cannot be secured in any other way. This suggests that European countries will not join the US to impose sanctions on Russian oil and gas products, alleviating fears about an imminent supply shortage.
OPEC Secretary General Mohammad Barkindo also said that the world doesn’t have sufficient oil-production capacity to replace Russia’s contribution to the crude market. Russia is the world’s second-largest oil exporter after Saudi-Arabia. It produces around 10 million bpd, and around half of those go to foreign countries. Russia was the largest supplier of natural gas and crude oil to the EU in 2021, underscoring their crucial energy ties.
The US imported an average of 209,000 bpd of Russian oil and 500,000 bpd of other petroleum products in 2021, according to the American Fuel and Petrochemical Manufactures (AFPM). Therefore, a stand-alone ban by the US will likely have limited impact on global supply without the participation of European counterparts.
The ongoing Ukraine war led to rising commodities around the world, sending the prices of European gas, nickel and wheat to their all-time highs. The commodity markets are pricing in a scenario in which a significant portion of Russian supply will be excluded from the market due to sanctions and supply-chain disruptions. This further raised the prospect of stagflation – a combination of slow economic growth and high inflation. Some Asian plastic factories have reduced operation capacity as their profit margins plunged due to rapidly climbing raw material prices. This maybe be just a snapshot of how rising crude oil prices can impact downstream industries, from aviation to utilities and manufacturing.
Meanwhile, US crude inventories have fallen to 413 million barrels, the lowest level in more than three years. Falling inventories underscore strong demand for energy as the economy recovers from the Covid-19 pandemic. Looking ahead however, with oil prices surging 30% over the last three trading sessions, consumers may start to feel price pressures and look to rein in spending.
WTI Crude Oil Price vs. US DOE Crude Oil Total Inventory
Source: Bloomberg, DailyFX
Technically, WTIdecisively breached above an “Ascending Channel”, as highlighted on the chart below. Prices breached multiple Fibonacci levels over the past few days, eyeing $125 for the next resistance. Breaking this level exposes a major resistance level of $137. The MACD indicator is trending higher above the neutral midpoint, suggesting that prices riding a strong uptrend but may be vulnerable to a technical pullback.
WTI Crude Oil Price – Daily Chart
— Written by Margaret Yang, Strategist for DailyFX.com
To contact Margaret, use the Comments section below or @margaretyjy on Twitter
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