- WTI recedes from three-week high of $41.45 flashed the previous day.
- OPEC+ ready to ease supply cuts from August, anticipates recovery in 2021 oil demand.
- Increased draw in EIA stocks fails to ignore risk-off, mixed data from China.
- A big day for markets but no oil-specific data/updates could keep traders at the mercy of relevant catalysts.
WTI remains on the back foot while declining to $41.00, down 0.40% on a day, during the pre-European session on Thursday. The energy benchmark extends Wednesday’s U-turn from $41.45, the highest since June 23, as market mood shifts amid escalating US-China tension. Also negatively affecting the black gold could be global oil producers’ readiness to ease output cuts and the US dollar recovery.
The New York Times suggests the US policymakers prepare for the further hardships of Chinese diplomats while Global Times shows Beijing’s readiness for hand-to-hand combat. The renewal of Sino-American tension dims the earlier risk-on sentiment backed by increasing hopes that the coronavirus (COVID-19) vaccine will be out soon.
Other than the US-China tussle, mixed readings from the dragon nation also weigh on the quote. China’s GDP and Industrial Production couldn’t convince market players of upbeat oil demand from the world’s largest commodity user as Retail Sales marked uneven growth of the dragon nation. Further, the US dollar index (DXY) pullback from the lowest since June to 96.13, up 0.10%, also drags the WTI prices.
On a separate page, the OPEC+ group’s announcement to ease the global output cuts by two million barrels per day from August pleased the bears. The oil producers anticipate a recovery in demand from 2021 to base their production hike. In doing so, the commodity fails to respect Wednesday’s official inventory data from the Energy Information Administration (EIA), -7.493M versus -2.098M expected.
Given the lack of oil-specific data, traders will keep eyes on the broad risk catalysts and the US dollar moves for fresh impetus. As a result, today’s ECB meeting, US Retail Sales and updates concerning the Sino-American story will be the key to follow.
Technical analysis
Short-term bears await a clear break below $40.75 to confirm rising wedge formation on the hourly chart. Following that, a 200-HMA level of $40.40 and $40.00 round-figures can act as validation points for the quote’s further weakness towards the monthly low of $38.73. Meanwhile, any clear rise beyond the said formation’s resistance near $41.55 will need validation from and June month’s high around $41.65 before pushing the bulls towards February month bottom near $44.00.
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