Crude Under Pressure
Oil prices have been under heavy selling pressure over the last week with crude futures reversing sharply from highs around the $80 mark. Price is now testing the 72.61 level support, a roughly 9% decline. The move lower comes despite a weaker US Dollar, which typically feeds into higher oil prices through increased demand. However, with growing concerns over the global demand outlook, oil prices have failed to capitalise.
Chinese Demand Drops
Data released this week shows that Chinese oil demand has fallen by 8% this year. This comes on the back of months of weaker industrial data and reports noting a build up of inventories at processing units linked to Chinese deliveries. Bloomberg also reported earlier in the month that sales at PetroChina and Sinopec have fallen around 5% this year.
Middle East Impact
Away from the demand outlook, developments in the Middle East are also having a clear impact on oil prices. Oil prices have dipped lower in the absence of a retaliatory attack from Iran against Israel, perhaps reflecting the perception that an attack won’t materialise. Additionally, with Israel submitting a new ceasefire proposal to Hamas, traders are weighing the potential of a de-escalation of violence in the region which would dilute oil supply risks.
EIA in Focus
Looking ahead today, focus will be on the latest EIA data. The market is looking for a fresh drawdown of 2 million barrels on the back of the prior week’s 1.4 million barrel surplus. Any upside surprise should further weigh on sentiment as we cross through the middle of the week.
Technical Views
Crude
The sell off in crude has seen the market reversing back under the 77.64 level. Price is now testing support at the 72.61 level and with momentum studies bearish, risks of a further push lower are seen here. Below 72.61, 67.45 will be the next support to watch with the bear channel lows in that region also.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.