WTI at Risk as Biden Weighs SPR Release to Tame Prices

WTI OIL OUTLOOK: SLIGHTLY BEARISH

• Oil prices maintain a bullish profile over the medium term, but its near-term outlook is slightly bearish
• Expectations that the Biden’s administration will intervene in the coming weeks to try to lower U.S. energy prices may act as a negative catalyst for the WTI benchmark, but not for long
• In this article we present the most important oil technical levels for the week ahead

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Oil retains a bullish outlook if the forecast horizon is several months, but the journey higher is not likely to be a smooth ride. In the very near term, volatility will remain elevated and temporary pullbacks should be expected as the U.S. government feuds with OPEC+ to nudge the cartel to ramp up production and threatens to draw on supplies from the Strategic Petroleum Reserves (SPR) to keep a lid on crude prices and bring down the cost of gasoline at the pump.

For context, OPEC+ flatly rejected calls by the Biden’s administration to open its taps more quickly and stuck to an agreed plan to raise output by 400K barrels per day after concluding its November ministerial meeting. The move irked the White House, as the underwhelming increase in production will not be enough to offset the current deficit and will ensure oil prices stay supported in the coming months, exacerbating energy-linked inflation.

With the US CPI at three-decade highs and public discontent growing, President Biden could soon take drastic steps and release oil from the SPR or, in the worst-case scenario, ban exports to prioritize the domestic market as WTI hovers above $80 per barrel. Even if the government pursues neither strategy, the expectation that aggressive measures will be taken imminently to provide relief should be sufficient to prevent further rallies and keep the commodity biased lower in the second half of November.

For these reasons, the balance of risk for oil looks slightly tilted to the downsidefor next week, but uncertainty is high and directional conviction low. Despite this bearish bias, I wouldn’t want to short oil at this point for fear the White House punts and fails to deliver – an outcome that could spark a relief rally of large proportions. At the same time, I wouldn’t want to be long either until the dust settles and there is more information on the government’s game plan for dealing with rising energy prices. The situation is very fluid, and clearly anything can happen, so traders will be better served by keeping an eye on the headlines in the coming sessions to try to capture attractive trading opportunities.

OIL TECHNICAL ANALYSIS (WTI)

Following the latest retracement, oil prices have fallen towards channel support near $80. If sellers manage to push the WTI benchmark below this floor over the next few days, we could see a pullback towards $78.30, a floor defined by the 50-day moving average and the November low. Should this support be taken out, the sell-off…