Crude Oil, WTI, OPEC+, Omicron Variant, Technical Analysis - Talking Points:
- OPEC+ meeting next amid demand fears and geopolitical tensions
- WTI technical outlook seems biased lower, watch moving averages
WTI crude oil prices fell almost 2% on Wednesday, with the commodity in a bear market since topping in late October. This left oil down over 23% from this year's peak so far. Over the past 24 hours, volatility continued to grip Wall Street , spreading into the growth-linked commodity. The S&P 500 suffered its worst 2-day loss since October 2020.
The first case of the emerging Omicron Covid-19 variant in the United States comes at a time when the Federal Reserve is contemplating speeding up the pace of tapering its balance sheet. This follows the central bank retiring the term 'transitory' from its inflation view. This is not a great combination for risk appetite, and the threat of more volatility leaves WTI vulnerable in the near term.
The Omicron variant poses a threat to global growth if governments respond with strict measures to contain its spread. That could reduce demand for oil if this results in reduced travel. Moreover, this comes ahead of today's OPEC+ meeting. The oil-producing cartel and its allies are expected to continue gradually restoring monthly output by 400k barrels per day.
However, recent measures by developed oil-consuming nations to release strategic reserves are making this meeting more interesting. The United States dropped 50 million barrels of them, alongside countries like China, Japan and India. Geopolitical tensions, and now the threat to oil demand due to the Omicron variant, could cause members to reassess their outlook. This may in turn offer some support to WTI.
Crude Oil Technical Analysis
WTI crude oil paused recent losses on the 65.10 – 66.39 inflection zone. The commodity has also confirmed a break under the 200-day Simple Moving Average (SMA). This is as a bearish crossover between the 20- and 50-day lines emerged. From a technical perspective, this is arguably making for a near-term bearish view. A breakout under the inflection zone exposes the August low. In the event of a turn higher instead, the SMAs could reinstate the near-term downtrend.
WTI Daily Chart
Chart Created Using TradingView
Oil Sentiment Analysis - Mixed
According to IG Client Sentiment (IGCS), about 73% of retail traders net-long WTI crude oil. IGCS tends to be a contrarian indicator. As such, the data suggests that prices may continue falling. However, over a daily basis, short exposure increased by 13.77%. Compared to a week ago, downside bets have decreased by 41.23%. Recent shifts in positioning are producing a mixed trading bias.
*IGCS chart used from December 1st report
--- Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter
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