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  • WTI is testing the $54 support, with price en-route to a 38.2% Fibonacci retracement of $55.55 but offers now capping the progress. 
  • Speculative bulls repositioning on signs of strengthening product prices along with central bank stimulus to counter coronavirus pressures. 
  • WTI is capped in a bottoming pattern on the charts, meeting a familiar late Jan 2020 resistance.

The price of a barrel of oil has to lead a bid in the commodity complex this week, with the CRB index taking flight from the 107.80s to fresh intraday highs of 176.06 on Thursday. There is an air of optimism in the markets following signs that not only are new cases of the coronavirus slowing but the pragmatics of the People’s Bank of China in response to the dramatic decline in demand will likely support a recovery in China’s economy and such stimulus will revive lost demand.

Overnight in Asia, the PBoC, as widely expected, responded reduced the country’s benchmark loan prime rate (LPR) to lower borrowing costs and ease financial strains on companies hit by the virus epidemic.

The People’s Bank of China interest rate decision

  • China sets 1-year loan prime rate at 4.05% vs 4.15% a month earlier.
  • China sets 5-year loan prime rate at 4.75% vs 4.80% a month earlier.

On Monday, the medium-term lending sought to ease the drag to the businesses from a coronavirus outbreak as well which boosted risk appetite and Chinese stock markets, filtering through to Asian and worldwide bourses in general. Despite the latest move, however, which Chinese indices were positive on the news, the MSCI’s index of Asia-Pacific shares (ex-Japan) declined and Japan’s NIKKEI also trimmed the early day gains to 28,480. The general consensus is that the move can only help the Chinese economy so much and there is still plenty more stimulus that will be needed.

It is not a home run for bulls, yet

Similarly, oil prices will unlikely to find a sustained bid given just how much uncertainty and threats that remains global economic growth. Moreover, it is not just the coronavirus risks that the oil markets are focussed on.

“While Rosneft’s sanctions may not translate into a severe disruption for energy markets, it will immediately hamper Venezuela’s ability to export crude, which further removes oil from the market. Meanwhile, in Libya, there are few signs that a cease-fire may be brokered, as Tripoli’s port was forced to halt shipping amid hostilities,” analysts at TD Securities explained. “In this context, the market is looking towards OPEC+ to grow their curtailment, as the group’s compliance is reigned in but Saudi continues to keep exports elevated and Russia is seemingly reluctant to participate in further curtailments.”

WTI levels

While the price of WTI has chalked out a bottoming pattern on the medium-term charts, bulls are failing at the late Jan highs and will require the 53 handle to hold if the [email protected]% Fibonacci retracement target in the mid-55 handle can be achieved int he near term. Failures of below 53 the figure open prospects back to the depths of the 52 handle’s support structure. A 50% mean reversion target of the recent bullish correction is located at 51.80 while a 61.8% retracement is located at 51.20. 

 

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