WTI and Brent Start Week on the Back Foot as Chinese GDP Underwhelms

Oil price prediction:

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Oil prices closed last week in full swing and this trend appears to have continued into the new week. Price gapped over the weekend with more selling pressure after the Asian Open leaving WTI and Brent crude oil down 1.17% and 1.12% respectively.

Chinese data and the US dollar

Last week’s risk rally came to a halt on Friday as strong consumer confidence data from the US reignited some concerns that it may be too soon to declare the US Federal Reserve a winner in its war against inflation. The Asian session indicates a continuation of this trend as the week begins.

China remains interesting as oil data released last month revealed that demand for oil remains strong thanks to a surge in petrochemical use which is expected to see China post 70% of the global gains. This morning brought a mixed bag in terms of Chinese data as the GDP reading is likely to dominate as it came in below estimates. However, upon a closer look at the data, there were some positives as the fixed asset investment figures year-on-year, industrial production year-on-year and GDP quarter-over-quarter beat estimates with retail sales falling year-on-year to estimates. by 0.1%. In the wake of the data release, the People’s Bank of China (PBoC) chose not to cut its medium-term lending facility as calls for and hopes for a stimulus package continue to grow.

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We have already heard growing speculation that China’s top leaders may announce a massive stimulus package at an important meeting later this month. However, after today’s decision, this month’s meeting of top Chinese officials may garner more attention as the stimulus package could provide a welcome boost not only to China but to global economies as well.

The US Dollar Index (DXY) ended the week on a bit of a note with potential to continue towards the immediate resistance at the 100.84 mark in the early part of the week. This could see Oil prices continue their current downward trajectory before bouncing back and looking higher towards last week’s highs.

Economic calendar and risk events

There is not much on the calendar in terms of event risk with retail sales and building permits data out of the US and of course inflation in the UK. Market sentiment this week is expected to be largely driven by earnings season in the US with continued positive earnings likely to see continued support for oil prices. Market participants are likely to view the positive earnings as a sign that a “soft landing” may be possible and push recession fears to the background at least for the time being.

For all the economic data and events that move the market, see DailyFX calendar

Technical outlook and final thoughts

From a technical perspective, both WTI and Brent crude ended last week with a bearish engulfing daily candle close as selling pressure persisted in the Asian session. We are seeing a slight bounce as the European session gets underway with a bit of weakness in the Dollar Index (DXY) helping as well.

WTI Crude Oil Daily Chart – Jul 17, 2023

Source: TradingView

Both Brent and WTI opened with a slight gap to the downside overnight, and market participants may be looking to close the gap before selling pressure returns. A push towards the $79.45 mark for Brent and $75.17 for WTI would see the weekend gaps closed before a sustained rally towards the 100-day moving averages. Lack of event risk today may result in low volatility today as US earnings season continues tomorrow as well as US retail sales.

Brent Oil Daily Chart – Jul 17, 2023

Source: TradingView

Customer Sense Data – US Crude Oil

IGCS shows that retail traders are currently long on WTI, with 60% 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 short rally higher before continuing lower.

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

Connect with Zain and follow her on Twitter: @employee