No surprises from OPEC; draws in oil keep Crude buoyant

Oil extraction
Joe Perry
By :  ,  US Market Analyst

The Omicron variant of the coronavirus may have caused a slight slowdown in manufacturing activity during December according to final PMI data this week. However, that wasn’t enough to give OPEC+ pause as they increased oil output by 400,000 bpd, as expected.  The unsurprised market took the hike in stride and continued to push prices of crude oil higher.  There was also a large draw of 6,432,000 barrels from the API’s crude oil stock and a draw of 2,144,000 barrels of crude oil from the EIA’s stockpile.  Add to that a in the Dow Jones “Industrial” Average to new all-time new highs, and what’s not to like about the price of crude oil?

WTI crude oil had peaked on October 25th, 2021 at horizontal resistance and its highest level since October 2014, near 85.90.  Price then pulled back and broke below an upward sloping channel trendline (red lines) the pair has been in since April 2020.  As fears of the Omicron variant crept into the market on November 26th, 2021, WTI Crude Oil moved from 78.63 down to 68.89, a move of -12.65%!  Price finally bottomed at 62.78 on December 2nd, 2021 and has been moving higher since. WTI recently broke above the 50 Day Moving Average, horizontal resistance, and the 61.8% Fibonacci retracement level from the highs of October 25th, 2021 to the lows of December 2nd, 2021.

20220105 WTI daily

Source: Tradingview, Stone X

On a 240-minute timeframe, WTI Crude Oil may be getting ahead of itself as price runs into horizontal resistance near 78.60. Price is currently nearing the apex of an ascending wedge.  Expectations are for the direction of a breakout of an ascending wedge to be lower.  The top, ascending trendline of the wedge is near 79.40.  Resistance above there is at the bottom trendline of the long-term channel near 0.8230.  However, notice that the RSI is diverging from price, an indication that WTI may be ready for a pullback.  First support is at previous horizontal resistance near 77.06, the bottom trendline of the ascending wedge near 76.00, and the 2022 lows at 74.44.

20220105 WTI 240

Source: Tradingview, Stone X


As a commodity currency, the Australian Dollar is correlated to the price of Crude Oil.  Just as WTI had pulled back from late October 2021 highs, so did AUD/USD.  And just as Crude Oil bottomed in early December 2021, so did AUD/USD.  The correlation coefficient between WTI Crude Oil and AUD/USD is +0.90!  Correlations with a coefficient about +0.80 are considered significant.  Therefore, when WTI moves in one direction, AUD/USD tends to move with it.  The pair has currently stalled just below the 50% retracement from the highs of October 28th, 2021 to the lows of December 3rd, 2021, near 0.7275. If price breaks above, the next resistance is at the 61.8% Fibonacci retracement from the same timeframe near 0.7341.  Support is at the 2022 lows and an upward sloping trendline dating back to December 6th, 2021 near 0.7184.  Below there, horizontal support is at the lows of December 20th, 2021 at 0.7084 and the December 2nd, 2021 lows at 0.6993.

20220105 AUDUSD daily

Source: Tradingview, Stone X

With an OPEC+ “as expected”, inventory draws, and a higher DJIA, WTI Crude oil has been moving higher during the first 3 trading days of 2022.  However, if may be time for a pullback.  AUD/USD is highly positively correlated to oil, if oil does pull back, expect that the Aussie pair could do the same.

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