Wednesday witnessed a sharp decline in oil prices, as West Texas Intermediate (WTI) crude oil futures fell from the high levels of $82 a barrel to below $80 for the first time since July 28, and closed with a loss of 2.31%.
US crude oil also continues its losses today, and retreats to below $79 a barrel, at 7:45 am GMT. As for the Brent crude oil price, we witnessed a decline in futures by 2.01% with yesterday’s closing.
Yesterday’s sharp declines in crude oil prices come with a number of mixed news in the markets. On the one hand, we have witnessed the downgrade of the US credit rating by Fitch agency from AAA to AA+ which is the second highest rating, due to the deteriorating financial conditions in the coming years and the debt ceiling crisis coming back to the fore repeatedly.
As this sudden downgrade led to a weakening of the sentiment about the future of the US economy and thus the demand for oil.
Samer Hasn Market Analyst and part of the Research Team at XS.com said, “On the other hand, we saw the largest drawdown of US inventories last week since 1980, according to new figures from the Energy Information Administration (EIA).
“Inventories of crude oil fell by more than 17 million barrels, to 439.8 million barrels, during the week ended July 28. While the withdrawals were very far from the consensus estimates of analysts at 1.367 million barrels. While these sudden withdrawals from inventories come as a pre-emptive reaction of the markets to the expected supply constraints.
“The markets are awaiting the decision to extend oil production cuts by the Organization of Petroleum Exporting Countries (OPEC) tomorrow, Friday, led by the Kingdom of Saudi Arabia, which is likely to extend the voluntary cut in oil production by one million barrels per day during the month of September next.
“On the technical side, and on the two-hour timeframe, Brent crude oil spot prices breached below the SMA-100 line (the red line), as well as below the uptrend line that extended since late June.
“The next test for oil prices is at the levels of 81-69-81.32 dollars per barrel, which includes the SMA-200.
“Whereas a breach below those previous lines may indicate the possibility of a continuation of the bearish trend in oil prices, with the possibility of a decline towards 77.16-78.17, followed by 71.47-72.87 next.
“On the upside, restoring the uptrend line and the SMA-100, may invalidate the previous bearish hypothesis, to make the levels of 86.80-85.94 in addition to the dynamic resistance line that extended since late June the next test levels to watch.
“While the breach above these levels may return buyers’ attention to the levels of $89.33-88.58.”