July West Texas Intermediate crude oil futures are under pressure on Friday, but still in a position to finish higher for the week. This week's rally has been fueled by positive supply data and a positive outlook for demand now that countries have begun to ease coronavirus-related lockdown and restrictions.
Demand Concerns Cap Weekly Gains
The end of the week weakness is being generated by profit-taking ahead of the long U.S. holiday weekend and escalating tensions between the United States and China. Some traders are also expressing concerns over the pace of demand recovery from the coronavirus crisis, but this is likely to become more of an issue next week once traders get data on U.S. Memorial Day holiday travel.
Prices reversed to the downside early Friday as the tensions between the U.S. and China centered on the former's imposition of a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. Tensions between Beijing and Washington have risen in recent days, over issues such as the coronavirus pandemic as well as a bill that was passed which could force Chinese firms to delist on U.S. exchanges.
Adding to uncertainties, China refrained from setting a 2020 GDP growth target and pledged to step up spending and financing to support its economy, the first time that the Asian country did not set a gross domestic product (GDP) goal since 1990 when the government started to publish such targets, according…
July West Texas Intermediate crude oil futures are under pressure on Friday, but still in a position to finish higher for the week. This week's rally has been fueled by positive supply data and a positive outlook for demand now that countries have begun to ease coronavirus-related lockdown and restrictions.
Demand Concerns Cap Weekly Gains
The end of the week weakness is being generated by profit-taking ahead of the long U.S. holiday weekend and escalating tensions between the United States and China. Some traders are also expressing concerns over the pace of demand recovery from the coronavirus crisis, but this is likely to become more of an issue next week once traders get data on U.S. Memorial Day holiday travel.
Prices reversed to the downside early Friday as the tensions between the U.S. and China centered on the former's imposition of a new national security law on Hong Kong after months of anti-government protests in the Chinese-ruled city. Tensions between Beijing and Washington have risen in recent days, over issues such as the coronavirus pandemic as well as a bill that was passed which could force Chinese firms to delist on U.S. exchanges.
Adding to uncertainties, China refrained from setting a 2020 GDP growth target and pledged to step up spending and financing to support its economy, the first time that the Asian country did not set a gross domestic product (GDP) goal since 1990 when the government started to publish such targets, according to Reuters.
Positive Results from Production Cuts
The Energy Information Administration (EIA) reported Wednesday that U.S. crude inventories fell by 5 million barrels for the week-ended May 15, marking a second weekly decline in a row. That compared with a forecast by analysts polled by S&P Global Platts for an average increase of 2.4 million barrels.
The EIA data also showed crude stocks at the Cushing storage hub fell by about 5.5 million barrels for the week, easing concerns over tightening storage space.
Wednesday's EIA report also showed that gasoline supply unexpectedly climbed by 2.8 million barrels, while distillate stockpiles rose 3.8 million barrels. Traders were looking for a supply decline of 3.5 million barrels for gasoline, while distillate stocks were forecast at 3.2 million barrels higher.
Fundamental Forecast
This data indicates that supply is being managed through compliance among OPEC+ members as well as U.S. production cuts. Demand is recovering in North Asia, particularly China, based on recent reports. And as Europe and the U.S. start to open up their economies, the demand should improve in those regions also.
However, the new wildcard is escalating U.S.-China tensions. With U.S.-China relations strained on three fronts - coronavirus blame, stock market delisting and Hong Kong - the tensions between the two economic powerhouses are likely to worsen over the near-term, which could raise just enough uncertainty to encourage crude oil traders to book profits and take to the sidelines on concerns over future demand.
Weekly Technical Analysis
Weekly July WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart, however, momentum has been trending to the upside since the formation of the closing price reversal bottom the week-ending May 1.
The market has a lot more work to do to the upside before the trend changes to up on the weekly chart. A trade through the last main top at $54.86 will change the main trend to up. A move through $17.27 will signal a resumption of the downtrend.
The minor range is $37.64 to $17.27. Its 50% level at $27.46 is support. This price is actually controlling the near-term direction of the market.
The short-term range is $54.86 to $17.27. Its 50% level at $36.07 is the first upside target.
The main range is $62.95 to $17.27. Its retracement zone at $40.11 to $45.50 is the major upside target. This zone could be controlling the longer-term direction of the market.
Weekly Technical Forecast
Given the price action over the last three weeks, the direction of the July WTI crude oil futures contract the week-ending May 29 is likely to be determined by trader reaction to the steep uptrending Gann angle at $33.27.
Bullish Scenario
A sustained move over $33.27 will indicate the presence of buyers. If this creates enough upside momentum then look for the rally to extend into $36.07. This is a potential trigger point for an acceleration into $40.11 to $40.86.
Bearish Scenario
A sustained move under $33.27 will signal the presence of sellers. This could trigger the start of a steep break with the first target $27.46, followed by another uptrending Gann angle at $25.27.
Technical Summary
Counter-trend upside momentum has been driving up July WTI crude oil since the week-ending May 1 at a pace of $4.00 per week. If this upside momentum is to continue the week-ending May 29 then the market is going to have to hold above $33.27.
A failure to hold $33.27 will indicate that momentum is getting weaker. This could trigger a near-term correction into perhaps $25.27.
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Comments
So the actual demand post 100% lockdown exit is yet to be seen & that may take some weeks to months.
So whatever demand revival we have seen so far is just 20-30% of overall demand increase we will see post entire lockdown exit.