The Crude Chronicles -Episode 38
<h2>Oil Recovery Rally Loses Steam</h2>
<p>The oil market has seen a week of heavily reduced volatility compared with price movements registered over the prior weeks. In the aftermath of the heavy selling which rocked the market just three weeks ago, WTI has since recovered and traded higher, reversing some of these losses. However, the recovery rally has lost a little steam this week given the pull-back in risk assets.</p>
<p>Traders had begun to speculate about the potential for negative rates in the US, amidst the ongoing slew of negative data as a result of the COVID-19 lock-downs. With the worst US jobs report since 19333 in April and with Q1 growth marking its fastest decline since the Great Recession, the prospect of such a move by the Fed appeared to be growing.</p>
<p>However, speaking last night, Jerome Powell (Fed Chairman) pushed back on this saying that despite the severity of the situation, it is not currently considering negative rates. However, the Fed chairman did reassure markets that the Fed stands willing to use any and all of its powers to help support the economy. Though, in a sign that monetary policy alone is not going to be enough, Powell also called on the need for greater fiscal support.</p>
<p>The global demand backdrop for WTI remains heavily subdued. While some parts of the world are beginning to ease lock-down measures, the pickup in demand is expected to be far slower than first thought and it will be a much longer period of time until the global economy is back to pre-virus levels.</p>
<h2>EIA Reports Unexpected Inventory Drop</h2>
<p>In its latest report, the EIA noted an unexpected drop in US oil inventories last week which fell by 750k barrels against an expected 4 million barrel rise. The report also noted that US crud production fell again by a further 300k barrels. While this is an encouraging sign, the market still remains heavily imbalanced following 15 consecutive inventory surpluses.</p>
<h2>OPEC Cuts Demand Outlook</h2>
<p>OPEC reduced its outlook for global oil demand this week I line with this new view. The producer cartel now forecasts demand to contract by 9.07 million barrels per day over the year, a steeper decline than the previously forecast 6.85 million barrel contraction given last month. However, the group did say that its new production cuts have already started to yield a positive response and should continue to support price.</p>
<h2>Technical Views</h2>
<p><strong>WTI (Bullish above $26.05)</strong></p>
<p>From a technical viewpoint. This week’s trading has seen price consolidating under the $26.05 resistance level. While the recovery has so far been capped, the near term bias remains bullish here with an eventual break of the level expected to shift focus onto the $41.35 region next, with VWAP coming in just ahead. To the downside, $17.10 remains the key support to monitor on any retracement lower.</p>
<p><img class="aligncenter wp-image-43493 size-full" title="The Crude Chronicles -Episode 38" src="http://blog.tickmill.com/wp-content/uploads/2020/05/oil-1.png" alt="The Crude Chronicles -Episode 38" width="1221" height="610" srcset="https://blog.tickmill.com/wp-content/uploads/2020/05/oil-1.png 1221w, https://blog.tickmill.com/wp-content/uploads/2020/05/oil-1-300×150.png 300w, https://blog.tickmill.com/wp-content/uploads/2020/05/oil-1-1024×512.png 1024w, https://blog.tickmill.com/wp-content/uploads/2020/05/oil-1-768×384.png 768w" sizes="(max-width: 1221px) 100vw, 1221px" /></p>
<p><b><i>Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.</i></b></p>
<p><b><i>High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 73% and 70% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money</i></b><span>.</span></p>
<p>The post <a rel="nofollow" href="https://blog.tickmill.com/fund-analysis/the-crude-chronicles-episode-38/">The Crude Chronicles -Episode 38</a> appeared first on <a rel="nofollow" href="https://blog.tickmill.com">Tickmill</a>.</p>
Leave a Comment