WTI, Crude Oil, State of the Union, Inflation, Russia Sanctions – Talking Points
- WTI crude oil prices extend gains during President Biden’s State of the Union address
- Proposed move to cut off Russian energy exports already giving refiners and shippers pause
- Prices are approaching the 110 psychological level, but bulls appear to be in firm control
The State of the Union address (SOTU) delivered by US President Joe Biden today did little to assuage uncertainty in global financial markets. US risk assets caught a small bid, with the high-beta Nasdaq futures contract climbing out of the red, following the greener Dow futures. The S&P 500’s VIX “fear gauge” closed at the highest level in over a year on Tuesday, reflecting the shock of uncertainty inflicted upon investors as a seemingly continuous flow of sanctions pile onto Russia and its financial institutions.
Mr. Biden harshly condemned Russia and its president, Mr. Vladimir Putin, over its invasion into Ukraine, empathizing the strength and impact of Western sanctions. Crude oil prices were trading nearly 5% higher on the day as Biden took the podium and began inching northward before trimming those gains. A strategic Petroleum Reserve (SPR) release of 30 million barrels was touted as a measure to help blunt the rise in fuel prices, with an additional 30 million barrels being matched from allied nations. The sharp rise in oil prices yesterday stemmed from a proposed measure to ban Russian oil exports to the US, a move that appears to be gaining bipartisan support.
Many US energy traders and refiners have preemptively canceled oil shipments of their own will, fearing possible legal violations amid a rapidly evolving landscape. A lack of willing cargo ships is also impeding the outflow of Russian oil from its ports, according to a Bloomberg report citing multiple tanker companies suspending shipments. That forced sellers to offer the steepest price discount in over a decade to help lure wary buyers. An official action from the United States would kneecap that already reduced capacity to sell its oil.
Meanwhile, oil demand continues to rise as Covid restrictions come to an end across key economies. The US Energy Information Administration (EIA) reported earlier this week that oil demand in December hit its highest level since the Covid pandemic started. The American Petroleum Institute (API) reported a 6.1 million barrel draw in US crude inventories. Analysts expected a build of 2.8 million barrels for the week ending February 25. Tonight will see the EIA’s inventory report cross the wires. A strong reduction in stockpiles would likely add to the tailwind on prices.
For now, the threat of even higher prices may be the biggest obstacle for oil bulls, as gasoline hit the highest levels in over a decade across many parts of the United States. That may lead to consumers cutting their travel and driving-related activity. Some analysts see pump prices rising to around $7 per gallon, a level that would likely cause such a reduction in consumer spending. Meanwhile, talks between Iran and the US to restore the 2015 nuclear deal are said to be nearing a final phase, although that doesn’t mean a deal will be secured.
Crude Oil Technical Forecast
WTI prices are approaching the 110 level, a possible point of psychological resistance that hasn’t been traded at since 2013, after surmounting the 161.8% Fibonacci extension from the October 2021 to December 2021 move. That Fib extension may provide support if prices have trouble pricing above the 110 mark. The MACD and Relative Strength Index (RSI) oscillators are showing strong upward momentum, suggesting bulls are in firm control.
WTI Crude Oil Daily Chart
Chart created with TradingView
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— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
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