- WTI is trading modestly lower but still trading near $120 amid risky conditions and China lockdown concerns.
- Weak US data, a surprisingly aggressive Fed, and tight restrictions in China could combine to send WTI back towards its 21 DMA.
Although still slightly lower on the day, oil prices trimmed most of the previous session’s losses on Monday, despite a sharp drop in global risk assets as investors fretted over inflation. higher-than-expected US currency last Friday and its implications for the Fed’s monetary policy making, as well as growing signs that the US economy could be heading into recession. WTI futures for the first month They are trading lower in the area of $120 per barrel, after having rebounded from the lows of the previous session, close to $118.
Traders cited the evolution of Covid-19 in China, after Beijing and Shanghai re-imposed restrictions as Covid-19 infections increased again, as a factor influencing price developments, as well as the mode of aversion to market risk, which has made the dollar stronger. A strong dollar means that dollar-denominated commodities are more expensive for international buyers.
However, the rebound from mid-session lows suggests that the appetite to buy dips remains strong for now. Indeed, global oil markets remain very tight as demand in the Northern Hemisphere nears its summer peak and OPEC+ supply woes show no signs of abating as Russian production continues to languish in the face of strict Western sanctions and smaller (mainly African) producers struggle with lack of investment and instability.
Meanwhile, the prospect of the United States and Iran returning to honor the 2015 nuclear deal, which could lay the groundwork for more than a million barrels a day of Iranian exports to return to world markets, appeared to be dealt a deathblow last week. pass. In the midst of a dispute with the International Atomic Energy Agency (IAEA), Iran is preparing to withdraw almost all the equipment that had been used by the organization to monitor its nuclear activities.
However, traders should note that, given the risk that 1) China’s shutdown will worsen, threatening oil demand in the country, 2) new US data this week points to a recession and 3) the US Federal Reserve delivers a hawkish surprise on Wednesday as inflation continues to surprise to the upside, oil could hit a rough patch. A test of the 21-day moving average in the mid $115.50 looks like a solid possibility.
Technical levels
Source: Fx Street
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