Crude Oil Price Rise May Struggle on Incoming Supply, Demand Data

[MongiIG]

CRUDE OIL OUTLOOK:

• Crude oil prices rebounding amid broad-based recovery in risk appetite
• Hopes for mild Omicron impact, lull in Fed-linked news may be at work
• Incoming trade, output and inventory data may cap upward momentum

Crude oil prices are on the upswing, with the WTI contract tracking higher alongside bellwether S&P 500 futures amid a broad-based recovery in risk appetite following last week’s blood-letting. That seems to reflect a bit of moderation in worries about the spread of the Omicron variant of Covid-19.

Markets seem to be coalescing around the consensus that this particular strain is more virulent but less lethal than its predecessors. That has stoked hopes for a minimal economic disruption as governments scramble for information to tailor a policy response.

The absence of big-ticket event risk informing Fed policy speculation may be helping too, allowing the markets to digest the fallout from the central bank’s increasingly hawkish messaging. Policymakers are mum through the blackout period preceding next week’s FOMC rate decision and the data docket is relatively sparse.

CRUDE OIL RISE MAY STRUGGLE ON INCOMING TRADE, OUTPUT, INVENTORY DATA

The volume of incoming news-flow will pick up in the day ahead. China will publish energy import and export data. The US is also due to report on cross-border sales. Meanwhile, the EIA will publish its short-term energy outlook while API produces a private-sector estimate of the weekly change in US inventories.

US stockpiles have cautiously edged up since mid-September while exports have dropped. Chinese exports have fallen too, which probably reflects both top consumers’ appetite for building inventories given the recent price spike and broader inflation worries. Updated EIA forecasts may see next year’s US production revised up.

Taken together, data pointing to more of the same might cap crude gains somewhat. Weak exports and a pickup in US output may signal that storage will be rebuilt relatively faster even as slowing economic activity cools demand. The JPMorgan Global Composite PMI gauge has struggled after receding from May’s peak.

CRUDE OIL TECHNICAL ANALYSIS

Prices are testing above resistance at the pivotal $70/bbl figure. Confirmation of a break on a daily closing basis looks likely to expose the next upside barrier at 73.14. Initial support is anchored at the $65/bbl mark, with a breach below that eyeing 61.11.

Crude oil price chart created using TradingView

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Written by Ilya Spivak, Head Strategist, APAC for DailyFX. 7th December 2021