- WTI is ranging between the $59.00-$61.00 levels amid calmer market conditions on Friday.
- Desks have been reiterating their bullish forecasts for oil and this has helped sentiment stabilise.
After Thursday’s large sell-off, crude oil markets have stabilised on the final trading day of the week. Front-month futures of the American benchmark for sweet light crude oil, WTI, have been rangebound between the $59.00-$61.00 levels so far this Friday, and currently trade just to the north of the psychologically important $60.00 mark, nursing on the day gains of about 40 cents or about 0.7%.
WTI trading well on the technicals
WTI has been responding well to technicals over the past 24 hours, which is not surprising really given the extent of Thursday’s sell-off – during such a rout, markets are often more responsive to technicals as fundamentals are temporarily thrown out of the window! Selling in crude oil markets on Thursday really kicked off when WTI broke below its 21-day moving average above $63.00, but the 50-day moving average offered strong support and coincided with Thursday’s bottom at $58.20. The mid-$58.00s to low $59.00 was also a key area of support/resistance back in late February/early March, offering further support in that regard.
For selling to really get going again, WTI is likely going to need to see a clean break of its 50DMA in the low $58.00s. Meanwhile, longer-term WTI bulls who may be keen to buy the recent dip may target a move back towards the 21DMA in the $63.00 region.
Driving the day
Cooler heads appear to be prevailing in crude oil markets this morning, helping the complex stabilise after Thursday’s steep losses. Indeed, helping the market stabilise has been reassuring comments from major investment banks who still favour higher crude oil prices over the coming months; Goldman Sachs are still calling for WTI to hit $80 in the summer and UBS predicting Brent will hit $75 in the second half of the year (Brent is trading at just under $64.00 this morning).
But the drivers of this week’s drop should not be discounted to readily and may continue to weigh on crude oil in the coming weeks, or at least slow any recovery rally. Firstly, the pandemic news in Europe continues to worsen as 1) the EU is engulfed in a third wave of the virus that is prompting more countries to tighten restrictions (France being the latest to announce new restrictions), 2) as the EU continues to bungle its vaccine rollout and, finally, 3) the much more efficient/rapid vaccine rollout in the UK looks to be facing some bumps in April, with less doses expected to be delivered than in March amid supply chain issues. The UK government is saying that the slower pace of vaccine deliveries in April does not affect the roadmap to reopening, but new lockdowns on the continent will certainly affect crude oil demand there.
Meanwhile, other crude oil bearish developments this week include a bearish weekly US crude oil inventory update (many desks see further inventory build ahead given the front-end of the crude oil futures curve having recently gone into contango) and lots of press attention on increasing Iranian crude oil exports to China; unofficial Chinese imports of Iranian crude hit above 300M tonnes per month in early 2021 and Indian refiners are adding Iran to their annual import plans amid expectations that the US will ease sanctions on the country’s exports.