Fear from Shanghai
A new week did not start well for crude oil, which has declined more than 7% from the open. WTI futures went down after fears from new Covid spread in Shanghai, which could cause possible disruption in oil demand outlook. Strong sell-off was supported by city’s authorities, which are willing to lockdown half of the city.
Fear from possible bigger Covid spread, despite the city closure, was not the only factor ‘helping’ oil to fall. Not long ago, Covid-19 significantly declined demand for oil, and another possible spread of disease could spark even bigger reaction to commodity prices, especially in times when China is trying to find other alternatives to Russian oil.
Related: Russia is no longer the number one supplier of oil to China
Black gold under support
Current 9-dollar fall gets crude under significant support line displayed as monthly VWAP (Volume Weighted Average Price). For the whole last week this line held the price several times above 109$ tag. Today, this yellow line has been broken and become an utterly strong resistance. If the move continues down, the next support could be set at 101.31 for CL (WTI futures).
30 minutes chart of CL, Monthly VWAP. Source: Author´s analysis
Another resistance is set around 123 gap from the week opening in area 111.39 and 112.35. In addition, next daily volume POC is at 113.43. Those numbers draw strong resistance area of 2% range.
30 minutes chart of CL, Price action. Source: Author´s analysis
As we can see, volatility persists high, thanks to several important factors as war, fear from possible Covid spread, inflationary pressures and political tensions connected to supply chain of crude oil. Therefore, it is highly recommended, if you trade in these times, to adjust size of your portfolio and trade volumes, because higher volatility correlates with higher risk.