Oil Slide Pauses For Now
Following weeks of heavy selling, WTI prices have seen some minor demand this week allowing prices to recover somewhat. The uptick in prices has been linked to the rally seen across risk markets this week as investors begin to digest the massive wave of central bank easing which has been announced over the last two weeks.
The Fed has been the most aggressive agent in adjust its monetary policy. Along with reducing rates from 1.75% to 0.25%, the Fed has also announced that it will now be running unlimited QE with the world’s largest asset manager BlackRock, helping manage some several of the Fed’s programs.
Stock markets have been retracing some of the sell off this week which is helping lift investor sentiment, translating into higher oil prices. However, in light of the severely fragile economic situation as a result of the disruption caused by COVID-19, the outlook remains bearish for WTI prices.
Earlier in the week, the latest set of manufacturing PMIs for the US, UK and Eurozone all came in below the 59 level, denoting a contraction in the manufacturing sector in those regions. On the back of China reporting its lowest ever manufacturing reading last month, the industrial demand environment is incredibly anaemic currently. This situation looks set to continue as more and more countries and cities declare lockdowns in a bid to help slow the spread of COVID-19.
With massive airline restrictions in place, WTI has lost its second biggest source of demand. Many countries around the world have temporarily halted large percentages of air travel with many airline providers announcing huge reductions in services being offered. With no end in sight yet, demand is likely to remain low in the near term.
EIA Reports Further Inventories Build
In its most recent update released this week, the Energy Information Administration reported that US WTI inventories were in a surplus again last week marking nine consecutive weeks of inventory increases. This report makes concerning reading for the oil market, highlighting the severe supply/demand imbalance which is keeping prices anchored lower. In light of this latest report, the recovery in WTI this week has become stunted and price action looks vulnerable to a continuation lower.
WTI Crude ( Bearish below 26)
From a technical viewpoint. WTI is still sitting below the 26.05 2016 lows which were broken last week. While below here, a continuation lower remains the preferred view. The 17.10 and 10.70 levels will be the next downside support areas to watch. Any recovery above 26.05, however, will negate the near term bearish view and put focus on a further push higher.
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