Oil remains under pressure.
Despite impressive US employment data on Friday, oil prices fell as the US Dollar rallied strongly. What are disturbing oil markets the most, though, is the delta-variant Covid-19 strain which has vast swathes of the planet in its grip. That is increasing fears that the global recovery will stutter and become very uneven, thus reducing oil consumption even as OPEC+ continues to increase production.
The declining pace of China Imports released over the weekend, which featured a massive fall in crude imports, has darkened the mood further in Asia today. Markets are also nervously watching the track of delta-variant Covid-19 on the mainland, where lockdowns and travel restrictions already in place have oil traders on edge.
Trading liquidity is being hampered in Asia, with both Japan and Singapore on holiday. Brent crude fell by 1.30% to $70.30 a barrel on Friday, falling another 1.30% to $70.35 in Asia today. WTI fell by 1.60% to $68.00 a barrel on Friday before falling another 1.55% to $66.95 in Asia today.
Both contracts look vulnerable to more bad news on the virus front, focusing on Mainland China. Markets will be sensitive to headlines suggesting that China’s economic recovering is peaking as well after the weekend trade data.
Both Brent and WTI have fallen through their 100-DMAs this morning at $69.85 and $67.25, respectively. These form intra-day resistance followed by $70.00 for Brent and $68.00 for WTI. The capitulation sell-off lows from the 20th of July are immediate support. That is $67.50 for Brent and $65.10 for WTI. Failure targets $64.50 and $62.00 a barrel, respectively.
Unlike the massive sell-off of the 19th and 20th of July, oils fall this time is not driven by a mass culling of speculative longs, but rather, fears that the economic recovery is faltering or could falter badly. That is an underlying structural premise of oil’s rally this year, and as such, both contracts remain vulnerable to more bad news on that front and could well move into new medium-term ranges well below $70.00 a barrel.
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