WTI and Brent Face Challenges as Chinese Economy Remains in Focus

WTI Crude Oil Price, Charts and Analysis:

Most read: Oil Price Forecast: WTI, Brent Crude Gaining Momentum Despite IEA Increased Outlook In 2023

Chinese economy, PBoC tonic and US rig count

Crude oil ended last week on a positive note with consecutive losses, ending the week with a gain of around 1.9%. A late week boost coinciding with general weakness in the US dollar as well as some optimism about a stimulus package from China helped WTI end the week at 71.60 a barrel. Overnight, the Asian session saw some indecision as prices fell around 1% before rebounding after the European open to trade near the 72.00 handle.

The People’s Bank of China (PBoC) is expected to cut interest rates on loans this week in what was seen as a potential positive for oil prices, but was largely overshadowed by the ongoing uncertainty over China’s recovery. We’ve seen a number of major investment banking players already lower their growth forecasts for China for the rest of 2023 which could continue to weigh on oil prices.

This comes despite data from the International Energy Agency last week that revealed that Chinese demand for oil in April hit a new all-time high while refinery productivity in Asia’s largest economy rose 15.4% in May, the second highest on record. Meanwhile, US energy companies continue to reduce the number oil platforms With data from last week indicating the seventh consecutive week of declines.

Source: Baker Hughes

Another factor that could come into play as the week progresses is the ongoing negotiations between the US and Iran. There has been little concrete feedback regarding the talks with market participants who are weary of the prospect of an oversupply of oil in the event of a positive deal. It is not clear whether or not this is part of the current rhetoric, but it remains a major area of ​​interest and could pose risks to oil prices.

Economic calendar and risk events

After a busy couple of weeks, we kick off the new week with a US bank holiday which could see less liquidity as we get closer to what will be the US opening. This afternoon’s calendar is blank with the first high impact piece of data for the week being released in the form of Initial Building Permits from the US tomorrow. We have some Fed policy makers scheduled to speak this week which could also see volatility pick up as markets continue to unravel the Fed’s thoughts behind last weeks pause in the hiking cycle.

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Technical outlook and final thoughts

From a technical perspective, both WTI and Brent crude snapped a two-week losing streak, ending last week up around 1.9% as the hammer candle closed. When one couples this with the past weeks double bottom pattern on a daily time frame, the conviction to continue bullish should be strong. However, as has been the case recently, the technical outlook has sometimes been overshadowed by a change in sentiment or high-impact data on the US dollar. This makes me wonder if this rebound has the necessary strength to continue towards the psychological level of 75.00?

Oil is currently testing the 72.00 resistance area with the 50 and 100 day moving averages resting above 73.60 and 74.60 respectively. A break above 72.00 would need to clear these hurdles first if we are to look for any sustained move to the upside.

Alternatively, a break down from here would encounter support at the daily low around 70.86 before the psychological indicator 70.00 comes into focus. Further downside we have support around 68.40 before the double bottom around 67.00 becomes a focus area.

WTI Crude Oil Daily Chart – Jun 19, 2023

Source: TradingView

Customer Sense Data IG

IGCS shows that retail traders are currently going long on WTI, with 78% of traders currently holding long positions. At DailyFX, we usually take a view contrarian to crowd sentiment, and the fact that traders are long suggests that WTI may enjoy a brief rebound before continuing lower.

Written by: Zain Fouda, market writer for DailyFX.com

Connect with Zain and follow her on Twitter: @tweet