Crude Oil in Week 8 (13.12.2024) and Expectations for Week 9.


By Chinedu Okoye 


Bulls Win the Week:

Crude ended the week (December 13th) up beat from the previous close against all metrics and on a lower spread. This is after two weeks of decline at the close, encapsulating a sting bullish trend. 

Will it continue? Let's analyze the numbers.


CRUDE PRICE MOVEMENTS (at the close from November 22nd through December 13):   

               22/22   | 29/11    | 06/12 | 13/12
BRENT: $75.17  | $72.09   |$71.12| $74.49
WTI:      $70.70  | $68.50. | $67.20| $71.29
AVG:     $72.93  |$70.30   |$69.16 | $72.89
SPREAD:$4.47  |$3.59      |$3.92. | $3.20

From the above chart Cude is up on a tightened spread, as WTI recovered more (%∆) than BRENT, rising +6.09%, versus BRENT's 4.52%, the latter also rose more in the trading week (Monday to Friday as opposed to Fridays close to the next which the table above depicts).



Timeline Trends (Month-to-month v Week-on-week):

With WTI adding +6.24% on the trading week (Monday to Friday), and BRENT +4.95% the Crude rise above its resistance level of $71 and $73 respectively.

(Chart 1: WTI In the Trading Week)

The WTI chart above mirrors the BRENT Chart below showing a steep rise from Monday through Friday, however we have reasons to believe this is a continuance of the range bound movement. 

(Chart 2: Brent Crude In the Trading Week)

The month-on-month charts for both WTI (see chart 3) and BRENT (chart 4), show crude unable to surpass it's resistance range ($71) or hold o for longer as crude is already down -0.54% (as at 00:37 today.)

(Chart 3: WTI M-O-M)

Just as well BRENT has stayed range bound (within support - resistance level) on the month, and is already down -0.04% as at the time of this article (00:37 hrs).

From the charts, both benchmarks, once support is breached a reversion upwards follows and when resistance is breached crude is met with resistance. However, both benchmark price closed at a higher w-o-w percentage growth relative to M-o-M. 


(Chart 4; BRENT M-o-M)

This would suggest a shorterm bullish signal but from the chart below showing a 2-month (8 weeks) timeline for BRENT/WTI Crude has struggled to stay above the $69 and $73 level and a spread above $4.00 led to a price retracement in the following week.

Chart 5: Crude (BRENT, WTI, AVG & SPREADS [Oct. 25- Dec. 13)



Spread Analysis:

Week 1 - 2: Week 1 (25/11) close led to a price level retracement downwards from above resistance leading to a downward reversion in the following week (week 2 {01/11}) so a weekly decline with BRENT drawing down more relative to WTI which then led to a tightened spread ($3.61 from $4.65).

Week 2 - 4: This trend continues as the tightening and decline (for both benchmarks), led to a marginal rise in the following week (08/11), and a further spread squeeze as WTI gained marginally more than BRENT. Since WTI gained $0.74, higher than BRENTs $0.22 the spread tightened to $3.49 taking both benchmarks,lower in week 4 (15/11).

Week 4 - 5: This reinforces our notion that prices struggle above resistance for long, and in the same vein, revert back higher at the next trading week as it did from week 4 to week 5 (22/11), where BRENT rose from just $71.05 to $75.17, and it's counterpart (WTI), from just $0.05 below its $67 support to $70.70.

The spread widened on a weaker BRENT rise relative to WTI, in week 4 close to $4.10 on higher BRENT relative rise, and widened to $4.47 in week 5 as BRENT was relatively more bid on the week. Like clockwork, the further rise in the spread from its resistance. 

Week 5- 6: Recall the spread is the level at which the premium on BRENT is met with resistance from substitution from US crude [WTI] which raises the price of the latter reducing the spread in the process as well as an eventual decline once both prices surpass resistance. This proved true given the downward pressure in week 6 (29/11) taking both benchmarks lower.

Week 6-8: With the Spread further from the $4 resistance level  at the week 5 close, (an indication of an overbought condition) —$4.47, the commodity faced massive resistance in the following week (06/11), and falling from  $70.30 to $69.16 (numbers being the avergae of both benchmarks as given in the Table above). 

This represented a two week decline at the close, as BRENT dropped $0.97, 12 cents lower than WTIs 0.85 as the spread widened to $3.92, from $3.59. Week 8 (13/11), saw an upward reversion to $74.49 (BRENT) and $71.29, with the spread tightening to $3.20.



Implications:

The charts 3-5 above is suggestibe of stable demand for crude amidst supply concerns. With the US unconstrained by OPEC quotas, US Crude swoops into the market at any drop in the spread (relative rise in BRENT), this then raises the price of US Crude (and BRENT) to the point that deters overall effective demand.

Since US Crude supply isn't controlled unlike it's BRENT (OPEC) Counterparts the price increase (depicted but the average rise) leads to a downward retracement. Since OPEC supply is relatively fixed in the period, the spread widened on the decline giving the US (WTI) benchmark supply glut.



Fundamentals Support and Resistance Factors:

Bullish Fundamentals:

Barring a recession the economic policy direction in key markets and in advanced economies, could (as earlier pointed) offset any potential price weakness from declining industrial demand. This is as the Federal Reserve, ECB, and People's Bank of China (PBOC), have all shown a willingness to ease should economic conditions demand it.

OPEC supply cuts or resistance to increase production quotas coupled with troubled member states struggling to meet or maintain current quotas, could in addition the the economic policy factor sustain prices at this level and possibly see a gradual increase to our H1 2025 price target.

Bearish Fundamentals:
Since crude prices are benchmarked in Dollars, a strng USD could put a cap on price gains as crude becomes expensive with a higher dollar exchange rate.

Should OPEC change course from price stability to market share, supply from OPEC+ could rise in addition to US Crude creating a supply glut which would be bearish for both benchmarks.

Remarks and Weekly Price Calls:

Going into the week and judging by the tightened spread in last week's rise, we expect crude to open lower at both the European and US Open and trade sideways to close marginally lower (at around or below support). But having declined two weeks in a row (week 6 & 7), we do not rule out the possibility of Crude closing out marginally higher than last week.

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