A slight uptick is not enough to break the fall
Despite a rally on Friday, oil prices were still expected to fall for a third consecutive week. Markets showed sharp declines on worries about a weaker US economy and declining Chinese demand.
Despite this week’s recovery, the market as a whole is still in the red, and Brent crude is down over 6%. This is the longest losing streak of the year. WTI has also regained some power and is trading 4% higher.
Since the Fed has been aggressively tightening monetary policy, the oil market has taken a beating due to rising fears that the economy of the US, the world’s top energy user, is headed for a recession.
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Even if the Fed has signalled that it may suspend its rate hikes in June, the harm may have already been done, especially in light of the turbulence in the banking industry. Released earlier on Friday, the most recent jobs data indicated that 253,000 individuals obtained employment in April, which was above expectations. However, job gains in March and February were reduced down by about 150,000 jobs in total.
Will OPEC make another cut?
Oil prices have been supported this week by the dollar’s decline versus other currencies, making the commodity cheaper for those who use those currencies. China’s vast manufacturing sector unexpectedly shrank in April as falling orders and weak domestic demand weighed on production.
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According to Kelvin Wong, senior market analyst at OANDA in Singapore, prices have been supported in part by speculation of likely supply cutbacks at the upcoming summit of the OPEC+ producer group in June. Saudi Arabia has dropped official price quotations for every type of its crude oil entering Asia, a sign that demand is still weak in the region.
WTI is testing resistances
The New York traded crude is currently testing key milestones after a terrible selloff. The bulls have taken the reins of this opportunity and they have already bought back two days’ worth and half of the week’s declines.
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Traders are now fighting at the resistance of $71.40, which will act as the new support if broken. The long term aim is the key $80 line, at which the 200-day average also rests for now.
The bears could move in if the bulls cash in. The closest support would be the $65 line in case the $71.50 would not hold.
WTI 1D chart, source: tradingview.com, author’s analysis