- WTI Oil pops above $74 after US, UK perform joint strikes on Houthi positions in Yemen.
- Tensions build up further in the region with further escalations from the Houthi side confirmed.
- The DXY US Dollar Index holds above 102, though moves nowhere despite hot inflation report and Fed members dampening hopes on March rate cuts.
Oil prices are rocketing higher after 60 airstrikes took place from the United Kingdom and the United States against Houthi positions in Yemen. The strikes are the next step in the story around the Red Sea where vessels and freight ships have been attacked by Houthi rebels out of Yemen during December. Meanwhile all big freight shipping companies are taking the long route around Africa, the US and UK have built a task force to restore safe passage in the Red Sea, with these strikes intended to create a new safe passage.
Meanwhile, the DXY US Dollar Index keeps facing selling pressure, with US Dollar bulls unable to rely on a stronger inflation report, tight labour market conditions or Fed officials pushing back on March rate cuts to supply uplift. One question on the table now is what could actually move the US Dollar Index up, as there is little left. This Friday the Producer Price Index is on the docket.
Crude Oil (WTI) trades at $74.15 per barrel, and Brent Oil trades at $79.37 per barrel at the time of writing.
Oil News and Market Movers: Markets price in risk premium
- Iran issued a statement saying that the military actions from UK and US will fuel insecurity in the region.
- Overnight a UK and US task force performed missile strikes on Houthi rebel positions in Yemen.
- In recent weeks the option markets were short on Oil, with a risk of sellers now facing a short squeeze on the ramped up geopolitical tensions.
- With the eruption of tensions in the Middle East and Red Sea, passage in the area might further decline and see shipping fees soar. Which in its turn will add to inflation.
- Reuters reported that China’s Oil imports have hit record levels in 2023, up over 11% against 2022.
Oil Technical Analysis: Next week to watch…
Oil prices are hurting short sellers that have built up quite a position in these past few weeks. Since the fall of 2023 Oil has been in steep decline with short sellers being quick to add more shorts to their positions. With the UK and US now performing attacks on Houthi rebels in Yemen, geopolitical tensions will start to rise further with Iran and other Middle Eastern countries could soon join the tensions, pushing up uncertainty on Oil supply worldwide.
On the upside, $74 is getting broken and opens a lot of room to the upside for Oil to move into. Although quite far off, $80 comes into the picture should tensions build up further. Once $80 is broken, $84 is next on the topside once Oil sees a few daily closes above the $80 level.
Below $74, the $67 level could still come into play as the next support to trade at, as it aligns with a triple bottom from June. Should that triple bottom break, a new low for 2023 could be close at $64.35 – the low of May and March – as the last line of defence. Although still quite far off, $57.45 is worth mentioning as the next level to keep an eye on if prices fall sharply.
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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 13 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.
Source: https://www.fxstreet.com/news/oil-jumps-over-3-after-joint-strike-on-houthi-positions-in-yemen-202401121130