Oil Spikes, Defends Crucial Support

No more gas for EU

After Russia shut down the Nord Stream 1 pipeline to Germany late on Friday, worries that Europe will be forced to go without natural gas from its primary source this winter increased. Russia ascribed the stoppage to technical issues that required repair.

The rise in natural gas and electricity costs and the euro’s drop to a fresh 20-year low versus the dollar make a deeper recession and a more significant peak in inflation inevitable.

G7 price cap on Russian oil impractical

The G-7’s decision to set a price restriction on Russian oil exports — a measure intended to cut down on the amount of money going to Vladimir Putin’s administration but fraught with significant implementation challenges — prompted Russia to act on Friday.

The Organization of Petroleum Exporting Countries is reportedly planning to reduce its output by up to 100,000 barrels per day in October, reversing its slight increase a month earlier. Later, Russia’s energy minister will meet with his counterparts from the organization.

It’s unclear what effect that would actually have, given that OPEC+ nations currently produce approximately 3 million fewer barrels per day than their agreed-upon limits.

2021 highs hold

It looks like the essential support lies at around 85 USD, where 2021 highs are located. As long as the price trades above that level, the medium and long-term uptrends remain intact. 

Oil is also trying to break above the medium-term bearish trend line for the second time. In that case, the next target remains at the 200-day moving average, near 95 USD.

On the downside, a break below 85 USD would likely lead to massive liquidations among the bulls, possibly pushing the commodity to 80 USD.