Nearby NYMEX crude oil futures closed at the $79.49 per barrel level on September 30, 2022. The now active month December Brent contract settled at $85.14. While both oil futures markets posted over 20% losses in Q3, they were still higher than the 2021 closing price levels.
On the first days of Q4, oil rallied as the end of US SPR releases loom large on the horizon, and OPEC is preparing to trim production in response to the falling prices.
Crude oil may have ended its bullish streak that took the price to the highest level since 2008; the energy commodity could be a lot closer to a bottom in October 2022.
The end of a streak
NYMEX posted a quarterly gain from Q2 2020 through Q2 2022. In Q3 2022, the streak came to an end.
The chart shows WTI NYMEX crude oil prices increased steadily, closing Q2 2022 at the $105.76 per barrel level. The close of $79.49 on September 30, 2022, was the first quarterly loss since March 2020.
Nearby ICE Brent futures followed the same path, with the price closing at $109.03 on June 30, 2022, and $85.14 on September 30, 2022.
SPR releases will end in October
Over the past months, the Biden administration authorized an up to one million barrels per day release from the US Strategic Petroleum Reserve. The sales are the most aggressive approach to stemming rising oil prices in history. NYMEX futures rose to a $130.50 per barrel high in March 2022. The SPR releases have weighed on crude oil while US production has been around the 12 million barrel per day level over the past months. The one million barrel per day SPR release is scheduled to end this month.
The US SPR is at the lowest level since the mid-1980s
The SPR has dropped to 422.6 million barrels as of the week ending on September 23, 2022, the lowest level since the 1980s.
The releases are scheduled to stop this month, but the administration could authorize a continuation of sales if prices move appreciably higher. Meanwhile, administration officials have said they intend to purchase crude oil below the $80 per barrel level to replace the barrels already sold, putting a potential floor under the price. While nearby NYMEX crude oil fell to a low of $76.25 per barrel in September, the price was back above the $86 level on October 3.
OPEC could cut production as the SPR releases end
This week, the OPEC oil ministers will meet at their biannual gathering to determine production quotas for the coming months. Brent crude oil prices have declined from $139.13 in March, a fourteen-year high, to below $92 per barrel. The odds favor a production cut.
Russia has been an influential cartel non-member, coordinating production policy with Saudi Arabia and the other OPEC members over the past years. Russian production declined during the war in Ukraine, and Russia depends on the cash flow from its petroleum production to fund its war effort. Crude oil and natural gas have become economic weapons against countries in the West supporting Ukraine. Russia will likely favor production quotas that will boost the oil price over the coming months.
Levels to watch in crude oil- The odds favor higher prices
Technical support for the November NYMEX crude oil futures contract stands at the September 26 $76.25 per barrel low.
The chart highlights the first technical resistance level at the September 14 $89.63 high. The November contract was at over the $86 level on October 3, with the price climbing towards a challenge of the first resistance level.
Technical support in the ICE nearby December Brent futures contract is at the September 26 $82.44 low.
The chart illustrates the first resistance level is at the September 14 $94.66 high. Brent was around $89 per barrel on October 3.
The end of SPR sales and OPEC’s desire for higher prices increase the odds of a significant rally for the energy commodity. Moreover, as China emerges from its COVID-19 lockdowns, the global demand for crude oil is likely to soar, lifting prices over the coming months. I favor long positions in crude oil at below $90 on NYMEX WTI futures and under the $95 level on December Brent futures.
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