Rising Risk Factors Blunt Recovery Optimism

The crude oil market has retreated lower again this week following initial strength. Firmer risk sentiment at the start of the week, in response to optimistic reports of the work underway to develop a COVID-19 vaccine, had helped lift oil prices which have been higher over recent weeks as easing lockdown measures around the globes have focused investor attention on economic recovery and increased demand.

However, into the middle of the week, WTI found fresh selling pressure as concerns over US/China tensions began to increase. President Trump has threatened to announce action against China over its proposed National Security Law for Hong Kong which was approved on Thursday. Traders now await to hear the details of US measures against China, fuelling concerns of a return to the trade war which decimated oil demand last year.

Oil prices have also seen selling pressure this week linked to reports that Russia is planning to ease the supply cuts recently agreed with OPEC. Russia, which has reportedly cut output by 2million barrels per day said that it is aiming to ease these cuts by July.

Traders now wait for the June OPEC+ meeting to see how the cartel will response. Saudi Arabia has already said that it plans to increase its cuts but there are fears that non-OPEC members aligned with Russia will abandon the cuts also if Russia does.

The weekly EIA inventories data for the US is delayed this week due to the Memorial Day holiday there and will be released later today. Following on from the prior week’s -5million barrel reading, the market is looking for a -2.5 million barrel reading this week which, if seen, should help to offer some further support at current levels. However, with the API yesterday reporting am unexpected inventory build of 8.7 million barrels against expectations of a 2.5 million barrel decline there are fears that a similar reading could be seen in the EIA data which would send oil lower from current levels.

Technical Views

WTI (Bullish above $29.05)

From a technical viewpoint. WTI prices are holding well above the monthly pivot here and are still atop the $29.05 level support. While above here, the immediate challenge is a break of VWAP which will then put the $41.35 level in sight, keeping the near-term bias firmly bullish. A retracement below $29.05 however will open the path for a deeper correction towards the $17.10 level once more.

The Crude Chronicles - Episode 40

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