WTI prices remain in bullish territory, but have slumped to test critical support ahead of key risk events
- WTI's upside attempt was capped at $55.18bbls in European trade and was sent to a low of $53.60bbs.
- Concerns over a potential slowdown in energy demand resurfaced following prices reaching their highest YTD levels yesterday.
The mention of Chinese slower economic performance, despite still on track of 6% GDP for the year ahead, weighs on the market's risk appetite and the surprisingly soft Chinese General Services PMI for January released on the weekend showing the Composite level dipping to 50.9 from 52.2 in December, barely holding expansion territory, was a reminder that the global backdrop is not so rosy as the recent rally in oil prices are otherwise saying. Then, along came the delayed release of the U.S. factory orders data from November, which sent oil prices even lower yesterday. There was a pickup on a spot basis, but with China out, markets are thinner and price action is more volatile.
However, prices are still holding near multimonth highs as investors weigh up news from the political crisis in Venezuela which is seen as a positive, following the U.S.'s extra sanctions aimed at starving the regime of cash and pressuring the President, Nicolas Maduro, to resign.
On the other hand, the opposition leader Juan Guaido is garnering international support from nations that are condemning Maduro for an election held late last year which was marred by an opposition boycott and vote-rigging. Should Guaido gain the presidency, following a U.S. lead coup, replacing his dictatorship with a Western-friendly regime, this would then be regarded as bearish for oil, at least for the near term, considering the nations is home to the world’s largest crude-oil reserves. The opposition leader, Juan Guaidó would be expected to contribute more oil to worldwide supplies. However, the Venezuelan state media have intensified a campaign against Guaidó claiming that he and his international supports risk plunging the country into a civil war. Maduro has also issued a warning hinting that Juan Guaidó could soon be imprisoned as a result of his challenge. In response, John Bolton, Donald Trump’s national security adviser, has proclaimed that violence against or intimidation of Guaidó or other opposition leaders “would represent a grave assault on the rule of law and will be met with a significant response”.
Looking ahead
There are two major risk events for WTI today, First up, we have the American Petroleum Institute supply data - although tomorrow's Energy Information Administration will likely garner more attention where analysts expected the EIA to report a rise of 3.7 million barrels in crude stockpiles for the week ended February 1st, according to a survey conducted by S&P Global Platts. We then turn to President Donald Trump’s State of the Union address in the evening which will likely give the dollar something to think about where investors will be watching for hints over Sino/U.S.-China trade relations progress, along with the partial government shutdown with respect to further infrastructure spending and border wall funding. the even follows an "informal meeting" that Trump had with Fed Chairman Powell where both discussed "recent economic developments and the outlook for growth, employment and inflation.
WTI levels
We have an inverse bullish head & shoulders and neckline that the price has so far still not been able to break below around 53.20 with that confluence of the 100 4hr SMA. However, the bullish correcting channel and price need to cross over and break with conviction the 38.2% fibo of the Oct 2018 decline in prices, circa 55.50. Meanwhile, the price action is potentially completing a possible B wave of another ABCD move should the mentioned confluence support level hold and price move above daily R1 located at 56.05, targeting the 60 handle. However, to the downside, a break of the H&S neckline and confluence area opens risk to S2 and confluence with the 21-D SMA in the 52.60s.