U.S. West Texas Intermediate and International-benchmark Brent crude oil futures are trading higher for the week, but have given up more than half of their weekly gains since early Thursday. The selling pressure is being driven by concerns that simmering tensions between the United States and China will continue to exert pressure on demand, despite the announcement of the resumption of trade talks between the two economic powerhouses.
The price action on Friday suggests that perhaps the bullishness early in the week may have been an overreaction to the news about the resumption of trade talks and a government report showing a larger-than-expected drawdown in inventories. After all, these events were preceded by a weaker than expected ISM US Manufacturing PMI report that showed the sector contracted. The PMI report, hitting its lowest level in three years, led to renewed concerns over a U.S. recession.
This week’s fundamentals and the price action indicate the market has actually found a comfort zone where it’s not too bullish or too bearish. Buying dips and selling rallies seems to have become the norm for more than a month, and this type of price action is likely to continue until there is a trade deal in place, or the odds of a global recession increase.
The news this week was a combination of both bullish and bearish events with neither side strong enough to firmly establish a bona fide trend. This was the biggest influence on the sideways trade.
Bullish: U.S.-China Announce Resumption of Trade Talks
Helping to turn around and underpin WTI and Brent crude oil futures this week was the news that the United States and China will resume trade talks. China’s commerce ministry said Beijing and Washington agreed to hold high-level trade talks in early October.
Bearish: US Factory Output Contracts
The Institute for Supply Management (ISM) said its index of national factory activity decreased to 49.1, the lowest level since January 2016, amid worries about a weakening global economy and rising trade tensions between China and the United States.
Bullish: China’s Services Sector Stronger than Forecast
On Wednesday, crude oil prices soared 4% after China reported better-than-expected services data. According to Reuters, “Activity in China’s services sector expanded at the fastest pace in three months in August as new orders rose, prompting the biggest increase in hiring in over a year.”
Bearish: API Reports Surprise Inventories Build
Crude oil prices were under pressure early in the session on Thursday after the American Petroleum Institute (API) announced a surprise crude oil inventory build of 401,000 barrels for the week-ending August 30, compared to analyst expectations of a 3.50 million barrel draw.
After yesterday’s announcement, the net draw for the year is 18.68 million barrels for the 36-week reporting period so far, using API data.
Bullish: EIA Report Shows Larger than Expected Draw
The U.S. Energy Information Administration (EIA) on Thursday reported that crude and product inventories fell during the week-ending August 30. Crude stocks dropped 4.8 million barrels, nearly double analyst expectations, to 423 million barrels, their lowest level since October last year.
Bearish: U.S. Job Growth Falls Short of Expectations
On Friday, the U.S. government reported nonfarm payrolls increased by just 130,000 in August. The increase fell short of Wall Street estimates for 150,000, while the unemployment rate stayed as 3.7% as expected. June and July job figures were also revised lower.
The two-sided price action was in sync with the news this week, making it difficult for the market to gain traction in either direction. It seems as long as U.S. inventories continue to fall then worries about lower demand will be dampened.
Weekly October West Texas Intermediate Technical Analysis
Swing Chart Technical Analysis
The main trend is down according to the weekly swing chart. However, momentum shifted to the upside. The main trend will change to up on a trade through $60.93. A trade through $50.50 will signal a resumption of the downtrend.
The minor trend is up. It turned up this week when buyers took out $57.40. This move shifted momentum to the upside. However, there was very little follow-through to the upside when this occurred, suggesting the buying was weak.
The short-term range is $44.84 to $65.62. Its retracement zone at $55.23 to $52.78 is support.
The main range is $74.04 to $44.84. Its retracement zone at $59.44 to $62.89 is resistance.
Trading between the two 50% levels at $55.23 and $59.44 will indicate the buying and selling is balanced.
Swing Chart Technical Forecast
Based on this week’s price action, the direction of the October WTI crude oil market this week is likely to be determined by trader reaction to the short-term 50% level at $55.23.
A sustained move over $55.23 will indicate the presence of buyers. Taking out $57.76 will indicate the buying is getting stronger. This could trigger an acceleration into $58.86 then $59.44.
A sustained move under $55.23 will signal the presence of sellers. This could trigger a retest of $52.84, followed by $52.78.
Taking out $52.78 could trigger an acceleration to the downside with $50.50 the next major target.