FIS: Crude Oil Market Overview: Crude steady
Crude levels have been relatively flat, providing neutral sentiment in the market.
This may have been influenced by a weakened dollar and an expectation that the Federal Reserve and Bank of England will tone down the magnitude of their interest rate hikes. The Fed and BoE are still expected to raise their benchmark rates by 75 basis points this week, which would make it the fourth increase in a row.
However, some within the futures markets believe it will move to a 50-basis point increase in December. The U.S. Dollar Index (USDX) measures the USD strength against a basket of six influential currencies, including the Euro, Pound, Yen, Canadian Dollar, Swedish Horner, and Swiss Franc, was reduced by 0.6% to 110.86, eating into the gains it made on Monday.
Even though the feeling is that the Fed will tone down its rate hikes, the job is not yet done, and inflation remains stubbornly high in developed economies. This was shown by Eurozone inflation rising by more than expected in October, according to the data shown on Monday.
In previous reports, we mentioned that the markets shouted, “$100 is coming!” Even though these shouts have quietened down, some are still confident. Tamas Varga of oil broker PVM said that dwindling oil supply, a possible halt to new Strategic Petroleum Reserve (SPR) releases, and reinvigorated oil demand growth, could also send oil above $100/bbl again. The Organization of the Petroleum Exporting Countries (OPEC) also released new data showing that it believes global oil demand will increase in the long run, as mentioned in its 2022 World Oil Outlook.
Despite these factors influencing a bullish sentiment, demand concerns raised by Covid-19 curbs in China offset them. Despite declining economic growth, Chinese cities continue stepping up zero-Covid curbs as outbreaks widen. Yesterday the curbs forced the temporary closure of Disney’s Shanghai resort, and sources say production of the Apple iPhone in the Foxconn plant, a major contract manufacturing facility, could drop by 30%, Reuters reported. This is off the back of China’s factory activity unexpectedly falling in October.
Despite the second-largest economy beating expectations for economic growth in the third quarter of the year, these persistent Covid-19 restrictions have combined with a prolonged property slump and global recession risks to cloud prospects for a complete oil demand revival. A similar attempt by the then US president Bill Clinton to lower prices at the pump in advance of the 2000 election - Al Gore controversially lost to George W. Bush - was similarly criticised.
Technical view of the Crude Oil Market:
December Futures – We noted in the last report that the futures were bullish, but in a corrective phase with key near-term support at USD 90.57.
A build in the aggregate open interest (AOI) suggested the market was building to the long side. The futures broke Fibonacci support but held the USD 86.35 fractal, resulting in the price moving higher.
The technical is once again considered bullish due to the strength of the recent upside move. However, AOI did level off a little on the back of the original pullback, suggesting there has been some exiting of long positions.
The RSI is at 51 and near neutral, whilst the stochastic is in the overbought territory. If the RSI moves below 50, we could see the futures enter a corrective phase.
Downside moves that hold above USD 91.53 will warn that the USD 97.27 – USD 98.75 resistance levels could be tested. We target the USD 88.77 fractal support below this level.
Technically bullish but vulnerable to a pullback, key support is at USD 90.57 with resistance at USD 98.75.
Written by Mopani Mkandawire, Archie Smith, and Jack Shilling, Edited by Mopani Mkandawire (https://freightinvestorservices.com/fis-live/).
