WTI bulls eye a break of highs to target Sep highs, back above critical $90bbls

• US oil prices rally higher on the OPEC cut and a drop in US oil inventories.
• US data improves this week, money markets price out overall optimistic speculation over a Federal Reserve pivot,

West Texas Intermediate crude is higher by some 1.58% having climbed from a low of $87.52 to a high of $88.41 breaking the prior day's highs like a knife through butter with a significant cut to production expected from OPEC+ that meets in Vienna. The cartel looks to buoy oil prices that have dropped by nearly 30% from their July highs.

Fears of slowing global demand had dragged the price of WTI down 37% from its peak in June," economist Jenny Duan at TD Economics said in a note, " and reports have said the group is considering cutting quotas by as much as two million barrels per day at the same time that Russia seeks to handicap a G7 initiative to cap the price paid for the country's oil to hamper its ability to fund its war in Ukraine.

''While the effective cut would be closer to 750k bpd, given OPEC's struggles to meet existing quota levels, an agreement of that magnitude would be bullish for the oil market nonetheless.''

''Indeed, it would translate to a production cut from current levels, while also highlighting the spare capacity concerns that elevate supply risks over a longer-term horizon,'' analysts at TDSecurities explained. 

'The analysts argue that ''the bottom could be in for crude prices,'' given Dec22/Dec23 spreads have rallied substantially since fears of an 'imminent' Iran deal pushed time-spreads to their lows in August.

''Our return decomposition framework has suggested that crude markets are now dysfunctionally ignoring supply risks amid a broad-based decline in participation,'' the analysts argued further.

''While physical traders have continued to hold onto their elevated positioning in crude markets, an exodus from money managers has distorted price action. Open interest from swap dealers has also collapsed, pointing to limited client hedging flows. In turn, the group of producers may attempt to send a strong signal that prices have now reached the strike on the OPEC+ put in an attempt to encourage participation to return to futures markets.''

Meanwhile, the US dollar has resurged, making black gold more expensive for overseas buyers. The US dollar index, DXY, was last seen up 1% at 111.20 but it had been as high as 111.735.  A tear in US yields has helped to prop up the US dollar as the money markets to price out overall optimistic speculation over a Federal Reserve pivot. The yield on the US 10-year note was up a high of to 3.78%.

Today's data went some ways in supporting the greenback as it failed to buttress recent hopes the Fed might adopt a less hawkish policy stance. The September ISM services index showed significant resilience in the face of rapid Fed tightening since March. ''At 56.7, the index rose for the 28th consecutive month and is more or less in line with the 20-year long-run average (57.5). In sum, service sector activity is not yet sufficiently below trend to exert strong downward pressure on inflation. Indicators of price pressures are slowing. The prices component was 68.7 vs 71.5 and the supplier deliveries index eased 0.6 to 53.9. Employment rebounded to 53.0 (+2.8) and new exports rose (+3.2 to 65.1), despite the strength in the US,'' analysts at ANZ Bank explained. 

However, oil prices were also supported after the American Petroleum unexpected drop in US oil inventories of 1.77-million barrels last week, against analyst expectations for a 333,000-barrel rise. The Energy Information Administration will release official inventory figures later on Wednesday morning.

WTI technical levels

Moving down onto the hourly time frame, we can see that the price has been supported by an hourly 20/50 smoothed moving average cloud. It reacted by leaving a bullish pin-bar and a series of W-formations that have concreated in a bullish structure, the latest of which is seeing a correction that would be expected to drive in demand from the bulls that are awaiting a discount:

Zooming in, the structure in focus shows that there has already been a move by the bulls at a 38.2% Fibonacci retracement.

Zooming out, we can see the time template and last month's high as a potentially key target for the days ahead: