- WTI has rallied back to the $108.00 zone from a previous test of its 21 and 50 DMAs around $105.
- Oil is being supported amid strong global demand (China lockdown easing) and ongoing supply concerns.
- Oil is holding up despite choppy stock market conditions.
After falling below $105 a barrel earlier in the session and finding support at its 21 and 50 day moving averages, WTI futures of the first month have recovered to trade at $108.50. This keeps prices slightly lower on the day, but will give crude bulls confidence that there is still plenty of demand to buy on WTI dips.
On Wednesday, crude oil prices pulled back sharply from weekly highs of $115.50, while sentiment deteriorated sharply on Wall Street, which incidentally had its worst day since June 2020. As US stock indices seem to have picked up where they left off on Wednesday and are currently trading at further losses and targeting a test of yearly lows, traders would be forgiven for doubting WTI’s ability to recapture Wednesday’s highs.
Wall Street’s slide on Wednesday was triggered by disappointing results from major US retailers (Target on Wednesday), which showed that inflation is beginning to bite the consumer, raising concerns about the economic outlook. from the US at a time when the Federal Reserve is preparing to rapidly raise interest rates to deal with inflation. That’s a toxic combination for stocks, and as a risk-sensitive asset, it weighed on crude as well.
However, oil has its own positive fundamentals to lean on and these keep WTI above $100 for the time being. Weekly data for crude inventories on Wednesday showed a surprisingly large drawdown and US refiners increased output to keep pace with rising US and global demand. The report revealed that refineries on the East Coast and in the Gulf were running at 95% capacity, the highest percentage possible.
Meanwhile, in China, Shanghai is about to see its lockdown restrictions eased from June 1, spurring hopes of a recovery in crude demand there. As for supply dynamics, fears remain over Russian production, with the EU expected to soon agree to some sort of ban on Russian oil imports, while many smaller OPEC countries scramble to increase production in accordance with production quota targets.
Source: Fx Street
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