Bearish Economic News Weighs On Crude

A combination of bearish economic events is weighing on crude oil futures on Friday, putting the markets in a position to finish the week lower. The central theme driving prices lower is a global economic slowdown. Contributing to selling pressure is widespread weakness in the Euro Zone, China and the United States.

U.S. West Texas Intermediate and international-benchmark Brent crude oil began Friday's session under pressure due to a dovish European Central Bank and weak trade balance data from China, however, the selling accelerated after the U.S. Non-Farm Payrolls report badly missed the forecasts.

In the Euro Zone on Thursday, European Central Bank President Mario Draghi said the European economy was in "a period of continued weakness and pervasive uncertainty". Conditions in the Euro Zone were perceived as so bad that the ECB:  pushed back the timing of its first post-crisis interest rate hike to 2020, cut its economic forecasts and launched a new round of cheap bank loans.

In China on Friday, dollar-denominated February exports fell 21 percent from a year earlier. This was the biggest drop in three years and far worse than analysts had expected. Imports also dropped 5.2 percent. So far, oil demand has remained steady, where imports of crude oil remained above 10 million barrels per day (bpd). However, an economic slowdown is likely to dent fuel demand and pressure prices at some point.

Crude oil futures are extending earlier losses on Friday after U.S. government data showed the economy added just 20,000 jobs in February, compared with estimates for a gain of 180,000 positions. Somewhat offsetting the news was a drop in the unemployment rate to 3.8 percent. Average hourly earnings were another positive, increasing by 3.4 percent on year over year.

Keeping a lid on prices are concerns that rising U.S. crude oil production is likely to outweigh the OPEC-led supply cuts that have been underpinning the markets since the first of the year. OPEC and its allies have been cutting production by 1.2 million barrels per day since January 1, while soaring U.S. production is likely to continue to increase by more than 2 million bpd in 2019.

Given the weakening global economy, worries over demand jumped to the forefront. There were no major developments over U.S.-China trade relationships, but the weakening economy in the United States and China have created a sense of urgency to get a trade deal in place in a timely manner.

The U.S. economy is still relatively strong, but with weakness in China now showing up in the trade data, the advantage in the trade negotiations may have shifted to the United States.

Signing a trade deal in a timely manner should be a positive for crude oil prices because it could help stabilize the global economy, thereby, stimulating demand.

Technical Analysis

April West Texas Intermediate Crude Oil

The main trend is down according to the weekly swing chart. The momentum, which had been trending higher is also starting to show signs of weakening.

The minor trend is up. This is helping to generate the upside momentum. A trade through $57.88 will reaffirm the minor uptrend. A move through $51.62 will change the minor trend to down. This will shift momentum to the downside.

The main range is $76.01 to $43.00. Its retracement zone at $59.51 to $63.40 remains the primary upside target and best resistance zone.

The minor range is $43.00 to $57.88. If the selling pressure continues then its retracement zone at $50.44 to $48.68 will become the primary downside target.

Based on this week's price action, the first downside target is an uptrending Gann angle at $54.00. Look for buyers to show up on the first test of this angle. If it fails then look for the selling to extend into the downtrending Gann angle at $53.01.

Crossing to the weak side of the angle at $53.01 will put WTI crude oil in a bearish position with the next target the minor bottom at $51.62. If this level is violated then look for the selling to extend into the retracement zone at $50.44 to $58.68. Watch for buyers to show up on a test of this zone because this is a value area.

On the upside, bullish news could drive prices through $57.88. This could trigger an acceleration to the upside with $59.51 the first upside target.

Forecast

With the OPEC-led production cuts and rising U.S. production seemingly offsetting each other at this time, the focus for traders has shifted to the weakness in the global economy and the potential for lower demand. If this theme continues then look for an eventual break into $50.44 to $48.68.

The wildcard remains a U.S.-China trade deal. If this can be reached in a timely manner then price could begin to rebound.