Refinery Attack Restores the Risk Premium
WTI and Brent crude oil futures are over 1% higher on Wednesday after an attack on a refinery in Saudi Arabia raised the risk premium, erasing two days of weakness tied to talks and comments about potential peace in the region. The attacks have brought back to the forefront major concerns about supply risks.
Reuters is reporting that Yemen’s Iran-aligned Houthis said they had hit Saudi Arabia’s biggest oil refinery with a missile. Saudi Arabia did not confirm the strike, but the intensity of the strike was felt in the market since this refinery produces 550,000 barrels per day.
So far the early reaction by traders has been relatively mild, but with the possibility of a re-escalation the market could easily rebound enough to challenge last week’s multi-month highs.
ING strategists are suggesting that the market is waiting for a response from President Trump, who may not offer any clarity until after Tuesday’s U.S. midterm elections. Without a response from Trump, speculators could turn into sellers later today.
Inventory Data and OPEC+ Keep Traders Focused
Looking at domestic supply, according to the American Petroleum Institute (API), crude supply continued to ease. Crude stocks dipped by 2.03 million barrels in the week ended October 23. Traders were pricing in a 15,000-barrel build, according to Reuters.
Later today at 14:30 GMT, the U.S. Energy Information Administration (EIA) will release its weekly numbers. Experts are calling for a 0.3M draw. This would be smaller than last week’s 3.1M draw.
Another item traders will be monitoring is whether OPEC+ oil producers keep their December oil output targets steady. This could be significant because most of the seven core OPEC+ members are already producing below their output targets.
Risk premium is likely to be the key issue on Wednesday. Traders are showing some reaction to the Saudi refinery missile attacks, but the relatively tame response suggests bullish traders want to get some support from President Trump before going all in on the long side this week.
Brent Oil Price Forecast
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See all Brent Oil forecastsDaily December WTI Crude Oil Futures Technical Analysis
December WTI crude oil futures are edging higher early Wednesday after a two-day setback. The main trend is up according to the daily swing chart. A trade through $103.92 will signal a resumption of the uptrend. The main trend will change to down on a move through $86.00.
The minor trend is also up. The minor trend will change to down on a trade through the last minor bottom at $95.25. This could also shift momentum to the downside.
The minor range is $95.25 to $103.92. Its retracement zone at $99.59 to $98.56 is potential support. On Tuesday, the market posted a low at $99.44 inside this zone.
The main range is $86.00 to $103.92. Its retracement zone support is at $94.96 to $92.85.
The 50-day moving average at $90.16 is providing both support and trend guidance.
Daily December Brent Crude Oil Futures Technical Analysis
December Brent crude oil futures are slightly higher early Wednesday on renewed buying after two days of selling pressure. The tight trading range this week suggests impending volatility and trader indecision.
The main trend is up according to the daily swing chart. A trade through $117.45 will signal a resumption of the uptrend. Taking out the long-term top at $119.50 will reaffirm the uptrend, setting up the possibility of an extension into another long-term top at $126.41. The main trend will change to down on a trade through the swing bottom at $95.12.
The minor trend is also up. A trade through $105.95 will change the minor trend to down and possibly shift momentum to the downside.
The minor range is $105.95 to $117.45. Its retracement level at $111.70 is the first potential support. Additional support levels come in at $107.26 and $105.57. These are just ahead of the 50-day moving average at $99.75, which is providing trend guidance and support.
What to Watch
December WTI Crude Oil Futures
For December WTI crude oil futures, my bias is to the upside because of the swing chart and the 50-day moving average. This may be the best way to approach the market when aggressive traders are willing to take out offers.
When they turn into passive bidders like they appear to be this week, they start looking for value at retracement zones, which they may have done on Tuesday at $99.59 to $98.56. This is normal price action especially near relatively high prices.
My bias will weaken if $98.56 fails as support. If this is the case then traders may have to prepare for a pullback into $94.96 to $92.85.
On the upside, a sustained move over $103.92 could create the momentum needed to challenge major tops at $106.75 and $107.77.
December Brent Crude Oil Futures
For December Brent crude oil, the uptrend on the swing chart and the strong trend on the 50-day moving average have me leaning to the upside, but this outlook works best if buyers are willing to take out offers. If the market shifts toward buying the dip, long traders will face downside exposure to $111.70 and possibly $107.26 and $105.57.
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