FIS: Crude Oil Market Overview
Both Brent and WTI benchmarks hit their highest points since August on Monday amid reports that leaders in China were discussing a change in the country’s strict Covid-19 restrictions.
However, these expectations were soon challenged after new Covid-cases surged in Guangzhou and other Chinese cities. We also saw officials deny the speculations.
The market will be watching the U.S. Consumer Price Index (CPI) data released this Friday due to high inflation and interest rate increases signalling a global economic recession. The market will be focused on the core inflation figures. October numbers may influence whether the U.S. Federal Reserve continues to raise interest rates.
The European Union ban on Russian oil is set to start on Dec. 5 and will be followed by a halt on oil product imports in February. Markets will be fully aware of this deadline. Russia’s seaborne crude oil exports spiked to a five-month high last week as buyers scrambled to get their hands on as much cheap Russian crude oil as they could ahead of the sanctions, according to Bloomberg.
India has also been jumping in to capitalise on the crude discount. This was shown by a reduction in its imports from the Middle East, falling to a 19-month low. Russia also overtook Saudi Arabia as India’s number two supplier after Iraq.
China is also a big importer of Russian crude and has declared it will not stop after EU sanctions take effect. An oil analyst from S&P Global mentioned that an option for Europe includes importing more from the U.S. and China and reducing exports to South America and Africa. This has consequences for those continents but is an option, nonetheless.
Technical view of the Crude Oil Market
Jan 23 Futures – Technically bullish but vulnerable to a pullback on the last report.
The only downside move we have seen came from the futures roll. The RSI held above 50, meaning the overbought stochastic is considered less relevant, whilst the futures have now traded to a high of USD 98.81.
The trend remains technically bullish, with prices above the 8-21 period EMA’s and the 55-Period MA, supported by the RSI making new highs. Aggregate open interest had levelled off, suggesting we had seen some profit-taking. It dropped further on the back of the futures expiry with only a slight increase on the USD 5.00 upside move. There is an AOI build, but it has been small.
Downside moves that hold at or above USD 94.53 will support a bull argument. Below this level, the futures will have a neutral bias, leaving the USD 92.33 fractal low vulnerable.
Technically bullish with near-term resistance at the 200-period MA (USD 103.11), we can see a more sustained run if we close above and hold above this level. We remain mindful of the AOI and would like to see further builds on upside moves. If we move higher and the AOI drops, it suggests market longs are exiting, warning of potential exhaustion.
Written by Mopani Mkandawire, Archie Smith, and Jack Shilling, Edited by Mopani Mkandawire (https://freightinvestorservices.com/fis-live/).
