Energy sector: Crude Oil regains lost ground

The topic that we didn’t have a chance to discuss on XM Live educational and trading session today. 

WTI’s price saw increased activity in the previous days, as it broke outside the usual range it had been moving within for the past months. 

This could be evidence that a significant change has been observed within the fundamentals of the Oil market and through this analysis, I aim to investigate the possible reasons for the sudden change of the price range. 

We will also be looking into other matters taking place around the world that could affect the Oil market. 

Looking at the weekly Oil market indicators I have noticed a small but rather important change in the previous week. During the previous days and specifically on Friday on the 30th of October, the weekly US Baker Hughes Oil rig count was released. The reading indicated that active Oil rigs had risen by 10 since the previous week now reaching 221. 

The increase could be considered an increase in demand for oil as the Oil rigs are usually opened when the Oil industry tends to be more active. 

However, on the same day, OPEC released its weekly production levels per member country. The most significant production change came from the group’s dominant leader Saudi Arabia that increased production by + 0.5M barrels, since the previous week. 

An increase in production may not have been expected by the Oil market at the moment and the happening may have been priced in with a subsequent drop of WTI’s price after the release of the news but also, with a negative gap opening on Monday. Even though the drop had started since the previous days, the news may have confirmed the bearish tendency.

 On the other hand, WTI’s price rose from the 2nd of November onward. On the 3rd of November, we received the American Petroleum Institute weekly report on inventory levels that indicated a large drawdown of -8M barrels. The news of course supported a more bullish market for the commodity.

 Similarly, on the 4th of November, the Energy Information Administration’s Weekly Crude Oil Inventories indicated another large drawdown of -8M barrels, locking in the bullish appetite for the rest of the day. On a different note, some market participants seemed to be associating the results of the US elections with the Oil market. 

According to various sources, it will be interesting to see who will be elected, as the views of the two candidates on the energy market tend to lean towards different directions. 

On the one hand, we have Joe Biden which said he is willing to invest an amount of 2T USD in green energy which is not the most positive news for the Oil market. On the other hand, we have Donald Trump that has supported US oil pumping for the past years. The fact that the state of Texas supported Donald Trump could be seen as evidence that producers in the US see Trump’s reelection as a way to survive.