Crude Oil Prices Uneasy with OPEC+ Meeting, ISM and JOLTs Data Due

[MongiIG]

CRUDE OIL OUTLOOK:

• Crude oil prices managed only tepid gains amid a broad rebound in risk appetite
• OPEC+ meeting in focus as markets weigh surprise risk on output quota increase
• US manufacturing ISM and JOLTs job openings data may nudge crude oil lower

Crude oil prices seemed to be somewhat unimpressed by a broad-based recovery in risk appetite at the start of the trading week. The markets seemed to be taking an opportunity to digest last week’s Fed-inspired fireworks. Stocks rose alongside gold prices while the US Dollar retraced lower from a 16-month high.

The benchmark WTI contract begrudgingly participated – rising just over 1.5 percent on the day – but the upswing remained firmly within the narrow range that prices carved out late last week. Traders may have been reluctant to commit in earnest as a gathering of OPEC+ officials looms ahead.

The Saudi-led supplies’ cartel and its allies – notably, Russia – have been struggling to meet output quotas as they wind back a production cap scheme. Another 400k barrel-per-day increase is expected. The alliance may spook prices if they opt for a larger action, but doubts about its ability to actually deliver may cap selling.

Rising US supply may be another headwind. A monthly report from the EIA published yesterday showed that production rose over 2 percent to 11.75 million barrels per day in November, the highest in over a year. That reflects a rebound in shale output amid economic reopening following Covid lockdowns.

Looking ahead, weekly US inventory flow data from API is on tap. The private-sector estimate will be weighed up against expectations calling for stockpiles to have added 963k barrels when official results print on Wednesday. That would mark the first three-week run of back to back inflows in almost two years.

The ISM manufacturing survey as well as the JOLTs job openings gauge are also on tap. The former is expected to show factory-sector growth slowed for a third month in January, hitting the slowest pace since November 2020. Meanwhile, vacancies are pegged to print at 10.3 million, the lowest since June.

Fed Chair Jerome Powell said just last week that raising rates at this time is seen as supportive of the central bank’s inflation and employment goals. This implies that policymakers are becoming worried about soaring wages amid broader reflation becoming a hinderance to hiring.

A drop in openings may thus be seen as steeling the US central bank’s hawkish resolve. That such action will ostensibly arrive when a downshift in growth is already underway – as might be highlighted by the ISM print – could hurt the outlook for oil demand even as risk appetite sours, pulling crude prices lower.

 

CRUDE OIL TECHNICAL ANALYSIS

Prices continue to grind higher along a steep rising trend line, but the appearance of negative RSI divergence warns that momentum may be ebbing. That might set the stage for a downturn. Technical confirmation of a reversal appears to demand a daily close below 84.65.

From there, the next layer of support is marked by the swing low at 81.90. Taking that out in turn opens the door for a probe below the $80/bbl figure. Alternatively, extension upward eyes the next layer of significant resistance at a former support area dating back to December 2013-January-2014, capped at 92.72.

Crude oil price chart created using TradingView

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Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 1st Feb 2022