2024 has been a tame period for WTI crude oil. Through the first nine months of the year, WTI has traded sideways, down a modest -0.66% YTD (USOIL CFD, continuous WTI futures). Regardless of evolving supply and demand or the news cycle, crude oil has been in a holding pattern.
With Winter pricing coming on, will prices buck traditional seasonality and rise? Although unconventional, a bullish Q4 for WTI is possible. US election results, Fed rate cuts, and global geopolitics are all potential bullish market drivers. Given the right combination of events, the markets may see WTI move higher ahead of New Year’s Eve.
US Elections: Trump Vs. Harris
Without question, a primary market driver of crude oil prices in 2024 has been the US electoral cycle. The race for the White House, as well as down-ballot contests, all have the potential to sway the WTI and Brent crude markets. Why? Supply.
Commodity prices are highly dependent on evolving levels of supply and demand. If supply and demand levels get out of balance, then the markets see shifting prices. It breaks down like this: when supply is greater than demand, prices fall; when demand is greater than supply, prices rise.
Election 2024 is a vital oil market driver due to the supply side of the equation. The matchup of Kamala Harris (Democrat) and Donald Trump (Republican) pits two very different views on American oil production.
For Trump, the mantra “drill baby drill” is a foundational campaign element. The basic idea behind this philosophy is to flood the world’s markets with US oil via expansive drilling and reinstatement of delivery modules such as the Keystone Pipeline. On the other hand, Harris has close ties to environmental programs such as the Green New Deal. Such programs are widely expected to reduce US oil production in favor of the transition to environmentally friendly energy sources.
Fundamentally, a Trump Administration is expected to reduce fossil fuel costs while a Harris Administration is projected to raise oil and gas prices. This correlation has been evident throughout late summer 2024. Beginning in early September, Harris began showing a palpable edge in polling data. This polling shift resulted in a two-week post-Labor Day rally of more than 4%, bucking traditional late-summer trends.
At press time, political market websites Polymarket.com (50%/48%) and Predictit.org (55%/45%) favor Harris winning the presidency in November. The bottom line is that a Harris victory will likely send crude oil prices higher in Q4 2024.
Monetary Policy: Fed Rate Cuts
18 September 2024 will go down in history as a pivotal moment in monetary policy. On this day, the United States Federal Reserve (Fed) cut interest rates by a jumbo 50 basis points, from 5.25% to 4.75%. It was the first reduction of the Federal Funds Rate since the COVID panic of March 2020.
The ½ point rate cut came as a shock to many in the markets. In fact, the last time the markets received a surprise ½ point rate cut was during the Financial Crisis of 2007/08. Perhaps just as important was the Fed’s forward guidance posted at the September meeting. FOMC policymakers suggested that an additional 50 bps in cuts would be enacted by the end of 2024, with more in 2025. This was an extremely dovish statement and one that had a profound effect on global markets.
Rate cuts and dovish Fed policy typically have a weakening effect on the USD. Subsequently, commodity prices appreciate as it takes more dollars to buy units of assets. In the case of oil, a devaluation of the USD implies that the cost of a barrel of oil will rise. In the week after the Fed’s ½ point cut, the USOIL CFD traded from a low of $68.61 (18 September) to a high of $72.36 (24 September), a gain of 5.4%.
For Q4, Fed policy is certainly a bullish market driver for WTI crude oil. If the proposed rate cuts come to pass in November and December, a weaker USD could be the catalyst for crude oil prices to rise by 2024’s close.
Middle East & Russia/Ukraine Escalation?
Generally speaking, wars and conflict have a bullish impact on commodity prices. A recent example of this was during the initial Russian invasion of Ukraine. Wheat, oil, and natural gas prices spiked as regional supply-chain uncertainty dominated sentiment.
As of this writing, there are two ongoing kinetic wars: Israel/Hamas and Russia/Ukraine. Although the fallout from these wars has been catastrophic, traders have become accustomed to dealing with the market angst. However, teh expansion of either war is likely to send commodities, specifically energy, prices higher.
So, are escalations likely in Q4 2024? The answer to that question remains obscure. Nonetheless, there are several events that can shake the crude oil markets to their core. First, any kinetic exchanges between Iran and Israel will mark a major escalation in Middle East tensions. The markets saw several such exchanges earlier in 2024; a reemergence of this behavior will undoubtedly bolster regional tensions.
Second, the use of long-range missiles by Ukraine inside of Russian territory could spark a direct Russia/NATO conflict. Russian Premier Vladimir Putin has publicly said that long-range missile strikes inside of Russia would be viewed as an act of war from NATO. This issue could be the catalyst for Russia/Ukraine/NATO escalation.
Making timely geopolitical predictions is a difficult task. But, if escalations between Israel/Iran and Russia/NATO develop, crude oil would be in a position to post significant Q4 2024 gains.
Technical Outlook
Thus far in 2024, USOIL has traded sideways. Why? Uncertainty. Neither oil bulls nor bears are willing to go all-in and drive this market directional. Several of the reasons behind the neutrality are outlined above.
Technically, crude oil remains in long-term bullish territory. Prices remain above 2023’s lows and in the neighborhood of $70.00. It’s also important to recognize the actual range from COVID-19 panic lows to Russia/Ukraine panic highs. Remember, in April of 2020, crude oil traded at -40.00 per barrel as global supplies surged. Many traders forget this key element of long-term crude oil pricing.
For Q4 2024, the critical level in the crude oil market is the 38% Fibonacci Retracement of the long-term range ($64.70). This area attracted bidders in early September and may do so again if tested. As long as the price holds above this threshold, the market is technically bullish.
On the other hand, a washout beneath this zone will likely be significant, with prices falling toward the $50.00-$44.71 range. Without question, the area around $65.00 will be the one to watch for the immediate future.
Bottom Line
Q4 2024 will be an exciting time to be a crude oil trader. Volatility is highly likely as the US Election, Fed policy, and geopolitical angst dominate market sentiment. From a fundamental standpoint, a Harris victory, Fed rate cuts, and war escalation are all bullish market drivers. Assuming this perspective, crude oil prices have the potential to rise by New Year’s Eve.
On the other hand, a Trump victory, Fed neutrality, and peace may send crude oil lower. However, at this time, the probability of these events converging is lower than in the first scenario.
If you’re trading USOIL, the technical level to watch is $65.00. Given a Trump victory and no more Fed rate cuts, the price could break beneath this zone and plunge by $10-$15 dollars per barrel. Of course, the opposite is also true. A Harris victory and successive Fed rate cuts could send oil prices higher by just as much. Ultimately, only time will tell.
One thing is for sure: Q4 will be a great time to trade crude oil. Thus far, whipsaw market conditions have defined 2024. No matter which fundamentals grip the market, volatility will lead to short-term trends, which can be extremely profitable for retail traders.
Risk Disclosure: The information provided in this article is not intended to give financial advice, recommend investments, guarantee profits, or shield you from losses. Our content is only for informational purposes and to help you understand the risks and complexity of these markets by providing objective analysis. Before trading, carefully consider your experience, financial goals, and risk tolerance. Trading involves significant potential for financial loss and isn't suitable for everyone.
