Crude recovery-rally stalemates

WTI prices quickly and sharply recovered from their two- and half-year lows and surged back up near the $74 range, yet its recovery rally was abruptly halted, as the technical-driven momentum dissipated. In this report, we aim to shed light on the catalysts driving WTI’s price, assess its future outlook and conclude with a technical analysis.

China’s falling imports raise demand worries

On Tuesday, the red giant released its 贸易平衡 report for the month of April and the data showcased that the country’s ongoing reopening efforts, may have started to lose momentum hence raising worries for the country’s recovery, alongside the prospects for increased demand for crude. More specifically, China’s imports contracted sharply, by almost 8% in April, signaling that domestic demand is weakening, as crude imports waned by 16%, reaching their lowest levels since the start of this year. For comparison purposes, March’s crude imports stood at 22.5%. When it comes to the exports, the nation beat expectations, reaching the 8.5% level, yet the rate is almost half of last month’s output, signaling that the economic recovery phase, may not be going according to plan for the world’s largest oil importer. Given the results, energy 交易員 may have started to downgrade their optimistic outlooks, which had anticipated that China would be the prime driver for higher energy prices, particularly for the second half of the year and rather indulged in some sort of short-term speculative behavior.

Supply constraints from OPEC+ proved insignificant

At the start of April, energy traders were quick on their feet and scrambled to recalibrate their positions to reflect the surprise announcement of OPEC+, for fresh output cuts. The oil cartel in a sense, caught everyone off guard, once again, as it broadcasted to the world its unyielding commitment at intervening 和 rebalancing the market whenever a so called “deviation” occurs. During its unofficial ministerial meeting, the organization announced 1.16 million barrels of output cuts, set to take place this month and will last for the remainder of the year. The voluntary cuts by OPEC+ attracted criticism from Western nations, more specifically the US, whose envoys outright branded the decision as ill-advised, expressing forthright their disagreement with the decision. Even though the US 和 Saudi Arabia share a strategic trade alliance, the US does not have an implicit say, into how the kingdom conducts its business. The relationship of the two nations has grown bitter over the past year, following the decision of the Saudis to cut oil production by 2-million-barrels last October. Looking at the event in hindsight, we can conclude that the decision served as a bullish catalyst for oil prices in the short term, yet the momentum slowly evaporated and the market quickly diverted its attention towards fears of recession, as the Federal Reserve keeps on tightening, to squash inflation and inadvertently suppresses the prospects for increased demand of crude.

技术分析

WTI Cash 4H Chart

• Support: 71.00 (S1), 68.00 (S2), 64.00 (S3)
• Resistance: 74.00 (R1), 77.00 (R2), 80.00 (R3)

Looking at WTI Cash 4-hour chart we observe crude rebounding swiftly from its recent 2 and half year lows and extending its rise near the $74.00 (R1) resistance level where prices are currently holding steady. We hold a sideways bias for WTI given the inability to press on higher, and supporting our case is the RSI indicator which registers a value of 54, signaling indecision surrounding the liquid gold. Furthermore, the narrowing of the Bollinger Bands also validates the view for a sideways motion at the current level as 波动率 practically dissipates. Should the bulls take the initiative, we may see crude clearing definitively the $74.00 (R1) resistance barrier and travel near the $77.00 (R2) resistance level. Should on the other hand, there is a negative momentum spike, we may see the bears dragging the prices below the $71.00 (S1) closest support level and edge closer to the $68.00 (S2) support base.

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