Key Talking Points:
- Oil demand continues to be sluggish as the Covid-19 pandemic refuses to leave
- Unwinding of OPEC+ production cuts and US-Iran nuclear accord are the main supply-side risks
- Check out my Q2 Technical Forecast for oil
Recommended by Daniela Sabin Hathorn
How to Trade Oil
Oil prices are coming off slightly again in today’s session after data reported last night in the US saw gasoline inventories rise by greater volumes than commercial crude stocks fell in the week ending April 2 (+4m vs -3.5m).
The fact that gasoline inventories ticked up during a week that usually sees a pick up in demand as people travel for the Easter break is a clear indication that overall demand for crude is still struggling to recover despite economic activity starting to get back to normal. The market was quick to pick up on this sign and US crude oil slipped about $1.70 per barrel (-2.88%) on the release of the data.
Overall, the optimism that fuelled the recovery in oil prices since November 2020 seems to be fading as the continued spread of Covid-19 around the world is having a negative impact. The discovery of various vaccines was the main driver behind the strong bullish trend but it now seems that despite quick adoption of vaccination programs, it will likely take until the end of the year to see a meaningful impact on oil consumption as lockdown restrictions are slowly wound down.
So demand conditions continue to be the main drivers of oil prices but there are also some concerns from the supplier side that could shape the price of crude oil in the coming months. On the one hand, the attempted revival of a nuclear accord between the US and Iran, which would see Iranian oil exports return to the market, could send oil prices lower. There is also the easing in production cuts from OPEC+ beginning in May, which will likely keep a lid on prices until a meaningful breakthrough is given on the demand side.
WTI Crude Oil Daily Chart
We’re used to seeing markets look for guidance beyond the obvious pricing dynamics so I wouldn’t discard the possibility of oil prices pushing higher in the short term. The stochastic oscillator is in a good position to support further bullish momentum and immediate support is located at 57.36, but the 20-day SMA has been keeping a lid on WTI crude in the last few sessions, so immediate resistance may emerge at 60.56.
If bullish momentum consolidates higher then 62.30 seems to be the area that buyers will be targeting, with a break above this area likely to consolidate a push towards the $65 mark. To the downside, a break below immediate support (57.36) would mean that WTI crude prices are vulnerable to further reversal, with the next meaningful support area being the 76.4% Fibonacci at 51.80.
WTI Crude Oil Weekly chart
The price action seen in the last two weeks plays in nicely with my Q2 technical forecast where previous price patterns were signaling further bearish pressure to emerge in WTI crude. The greatest obstacle at this point is the support previously mentioned at 57.36, but if a build-up in selling pressure can see this area invalidated, then the price of WTI crude will be in a good position to complete the full cyclical retracement.
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin