Oil Prices Will Remain Under Pressure Until There Is A Substantial Shift in Trend

Russia-Ukraine Conflict

Summary:

The U.S. may cap the price of Russian crude exports above $60 per barrel, a level higher than earlier signals. Earlier discussions focused on setting the price cap at $40-60 per barrel. The U.S. wants to set a price high enough to cover Russia's production costs and allow it to continue producing.

SELL WTI

Close Time

CLOSED

89.500

Entry Price

77.600

92.600

57.535 +0.302 +0.53%

127.4

Pips

Profit

77.600

88.226

Exit Price

89.500

Entry Price

92.600

Fundamentals

The U.S. may set a price cap on Russian crude exports above $60 a barrel, a level higher than earlier signals.

A U.S. Treasury official revealed that Russia could still move enough tankers to transport most of its crude outside the control of the new G-7 price limit, underscoring the limits of this most ambitious plan to date in limiting Russian revenues.

All parties, including insurance, trading, and shipping companies, now realize that Russia can largely circumvent the sanctions program through its own vessels and services.

If Russia refuses to comply with the cap, its daily exports of crude oil and refined products could be reduced by 1 million to 2 million barrels per day, the official said. Russia exported more than 7 million barrels a day in September.

Meanwhile, Russian President Vladimir Putin and other Russian officials have said they will not sell crude to countries that support the price cap, a restriction that has been criticized as unrealistic by the industry and even some U.S. allies.

Rapidan Energy Group analyst Hunter Kornfeind said the West does not want to see Russia stop production, which would lead to a massive supply disruption of Russian crude. The price cap could be close to the current trading price of Russia's benchmark Urals crude.

The average delivered price for Russia's main export, Urals crude, has been $63 a barrel for the past three years and $64 a barrel for the past five years, according to data from agency Argus Media.

Raoul LeBlanc, an analyst at S&P Global Commodity Analytics, said the limit price may also have to take into account logistics and transportation costs that are typically borne by sellers. He added that price history shows that transportation costs for marginal Russian producers are around $50/bbl.

Commodities trading giant Trafigura said there is theoretically a large enough shadow fleet to continue delivering Russian crude after Dec. 5.

WTI: Oil Prices Will Remain Under Pressure Until There Is A Substantial Shift in Trend_1

Technical Analysis

WTI crude oil has been continuing its long-term downward momentum since mid-June, and its two most recent rallies have failed to form an effective trend continuation. During the last rally, crude oil prices broke above the 100-day SMA to give the bulls hope. However, the subsequent sessions saw prices pressured below the 100-day SMA again, making the bulls feel slightly overwhelmed.

Nevertheless, the current momentum indicators suggest that bullish forces are strengthening. Specifically, the stochastic oscillator is rising after rebounding from the oversold territory of 20, while the RSI has jumped above the 50-neutral mark.

If the bulls gain strength, prices could rise to the 89-day SMA at $92.00. Overcoming this hurdle, bulls could target the August high of $97.50 overlapping the 200-day SMA. A break of the latter could open the door to a $102.00 ceiling.

On the downside, if the positive momentum wanes and prices retreat again, the initial decline could be supported at the recent low of $81.30 level. Below that level, the focus could shift to second support at $79.60 or even lower.

Overall, WTI crude oil has tried to recover in the last few sessions as positive fundamentals are strengthening. However, we believe that until the trend signals a substantial shift, it is still recommended to go short at highs.

Trading Recommendations

Trading Direction: Short

Entry Price: 89.50

Target Price: 77.60

Stop Loss: 92.60

Valid Until: 2022-11-07 20:00:00

Support: 82.30, 81.28, 78.60

Resistance: 85.60, 86.90, 87.11

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