Crude Oil Firms on OPEC+ Intentions and API Data. Will WTI Break the Range?

Crude Oil, WTI, OPEC+, Fed, ECB, China, API, OVX, Crack Spread – Talking Points

• Crude oil is pushing to the top end of the range going into the Thursday session
• OPEC+ is talking up its intentions to get the result they desire from pricing
• A sizable drop in inventory added to positive sentiment. Where to for WTI?

Crude oil is firming going into Thursday’s trading session after notable gains overnight in the wake of the OPEC+ gathering in Vienna.

Saudi Arabia’s Energy Minister, Prince Abdulaziz bin Salman, said in reference to oil price stability, “we will do whatever is necessary, whatever it takes.”

Earlier in the week, the cartel announced that the current 1 million barrels per day cut would be extended beyond July and into August. Additionally, Russia would reduce its output by 500,000 barrels per day.

The squeeze on supply comes at a time when the outlook for global growth has become somewhat mired.

Further tightening of monetary conditions is expected across the Western world in the coming months, with the only notable exception being Japan, a major energy-importing nation.

The US Federal Reserve left rates on hold at its June meeting but is widely anticipated to raise them again at their meeting later this month.

The Federal Open Market Committee (FOMC) meeting minutes, released overnight, revealed that several board members were in favour of tightening policy.

The rhetoric from the European Central Bank (ECB) has also seen the market price in hikes there for the remainder of 2023.

The aim of bringing down inflationary price pressures might weigh on economic activity in many parts of the globe over the medium term.

Additionally, China’s attempts to reignite its economy continues to struggle to get off the ground with the Caixin services PMI missing estimates yesterday. It came in at 53.9 for June, rather than the 56.2 anticipated and 57.1 previously. The composite PMI was 52.5 against 55.6 prior.

The American Petroleum Institute (API) inventory report showed a decrease of 4.382 million barrels for the week ended June 30th which may have assisted in underpinning the oil price. The drop comes on the back of 2.408 million fewer barrels in the week prior.

The underlying structure of the WTI futures market appears to be unperturbed about the outlook for oil prices.

The OVX index is a measure of implied volatility for oil that is calculated in a similar way to the VIX index’s interpretation of volatility for the S&P 500. Oil volatility remains low and might indicate a lack of conviction for direction in price.

At the same time, the price difference between the front two futures contracts is near equilibrium, which may denote a degree of equilibrium in the market.

Furthermore, the RBOB crack spread that has rolled over after trying to move higher last month. The RBOB crack spread is the gauge of gasoline prices relative to crude oil prices and reflects the profit margin of refiners.

RBOB stands for reformulated blendstock for oxygenate blending. It is a tradable grade of gasoline. If profitability for refiners continues to decrease, it may lead to less demand for the crude product. For now, it appears to be neither overly nor underly profitable for refiners.

If the market is in balance, more range trading for black gold could be in store. Updated crude oil prices can be found here.

WTI CRUDE OIL, CRACK SPREAD, BACKWARDATION/CONTANGO, VOLATILITY (OVX)

Chart created in TradingView

— Written by Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @DanMcCarthyFX on Twitter