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What should you know about Saudi Aramco’s trip to China?

The stabilizing situation in the banking sector calms investors. Fed dovishness weakens the USD and China is backing their demand for crude with Saudi Aramco.

Big country, big demand

Saudi Aramco’s chief executive visited the capital of China. The business trip led to the deal that the company would take a 10% stake in Rongsheng Petrochemical Co., for $3.6 billion. Rongsheng Petrochemical manufactures and distributes petrochemical and chemical fibre and is well known giant oil complex. China represents a huge demand for crude oil and its products, therefore the Saudi’s intention to have a tighter connection is logical. 

We have informed about this topic: Oil set for the most significant weekly decline in multiple months

This deal ensures a supply of 480,000 barrels a day to Rongsheng’s refinery. The whole world closely watches the demand for oil and oil products in China, because the rise in demand raises the price of crude oil. To add, this is not the only big business between Aramco and China. Saudi Aramco made a deal to build a new refining and petrochemical complex in the north-eastern province of Liaoning. China is clearly backing the demand for crude oil and preparing to boost the economy.  Based on data from Bloomberg, the top crude oil producers see a surge in oil demand in China by 5.1% this year.

The calmer banking sector sends oil up

The oil rally continues in the new week and commodity writes +4.78%. The US support to the banking sector and a potential buyer for SVB calms investors and erased risk-off mode to the neutral zone. Volatility persists but the possible increase in demand and the calmer situation in banking send oil to new daily highs above the level of $72. 

The close resistance could be at the level of $72.84 as the developing VWAP (Volume Weighted Average Price) of this month. The next resistance could be at the $76.62 monthly POC (Point of Control). The support area could be around the level of $69 where the 1st standard deviation and monthly volume occur. 

30 minutes chart of CL (Crude oil futures contract), Monthly VWAP. Source: Author's analysis

30 minutes chart of CL (Crude oil futures contract), Monthly VWAP. Source: Author’s analysis

The daily market profile shows the closest resistance in the current up move at the level of $73.92 as the POC from March 14th. The support is located at $66.55 as the POC from March 20th

30 minutes chart of CL. Daily Market Profile. Source: Author's analysis

30 minutes chart of CL. Daily Market Profile. Source: Author’s analysis

Volatility persists

Despite the fact, the oil has appreciated last 7 days, the bigger look at the development keeps crude oil in the decline with the steepest first/quarter loss since 2020. It is important to have in mind the potential US recession and situation in Ukraine. The volatility index keeps above 43%, which is an average number from the last 12 months. 

Read more: Dollar index plunges to 6-week lows after dovish Fed decision

The next very important macro influencing the price of crude oil is the further steps of the Fed. Despite the culminating inflation data, Fed announced a dovish commentary on the monetary policy with only a 25 bps rate hike. The dollar plunged and the weaker USD has a significant role in the price of crude oil.

Tomas is a professional trader and money manager on foreign exchange market from 2014. His main domain are commodities. Experiences gained due this period are transformed to consul...

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