Crude oil benefits from US SPR buying and defies weak China data. Higher WTI?

Crude Oil, WTI, Brent, SPR, China, US Dollar, Federal Reserve, TOPIX – Discussion Topics

  • The price of crude oil made a comeback this week with the help of reserve buying.
  • Chinese data continues to disappoint and concerns about the country’s economic health are growing.
  • The US debt ceiling dominates the headlines. How long will the stalemate last?

The price of crude oil rose slightly on Tuesday after gaining sharply in North American trading on news that 3 million barrels will be bought to replenish depleted stocks in the Special Petroleum Reserve (SPR).

The WTI futures contract is at $71.50 a barrel, while the Brent contract is slightly above $75.50 a barrel.

The rally was slowed only slightly, although weak Chinese data showed that the lifting of Covid 19 restrictions is not yet leading to the economic growth the government and the market had hoped for.

Chinese industrial production was 5.6% year-on-year at the end of April, down from the expected 10.9% and 3.9% before that.

Retail sales were 18.4% in the same period, instead of the forecast 21.9% and 10.6% before.

Non-rural fixed investment and real estate investment also fell short of estimates at 4.7% and -6.2% respectively. There is a strong base effect in the data due to the economy being in a Covid 19 freeze at this time last year.

In the North American session, three Fed speakers expressed their views from three different perspectives. The relatively newly appointed Chicago Fed president, Austan Goolsbee, struck a slightly dovish tone when he said he was not keen on the Fed’s latest rate hike.

Atlanta Fed President Raphael Bostic said that if he had to vote today, he would not change interest rates, while Minneapolis Fed President Neel Kashkari believes the Fed still has more work to do to bring inflation down.

In any case, government bond yields at the short end of the curve were mostly unchanged, while yields on 10-year and longer maturities rose by less than a handful of basis points. Nevertheless, the US dollar lost some ground.

Equity markets were also unimpressed by the comments, but the main focus seems to be on the debt ceiling issue.

House Speaker Kevin McCarthy said an agreement was still a long way off, while the Treasury Secretary continued to point to the looming deadline of 1 June before the unthinkable, a US default, would become possible.

Amidst this uncertainty, gold continues to be seen as a potential haven, trading above US$2,010 per ounce. Japan’s TOPIX equity index traded at its highest level since 1990, while the rest of the APAC equity indices were mixed with no major movements.

Following UK labor market data and EU GDP figures, retail sales will be released in the US and the latest consumer price indices in Canada.

TECHNICAL ANALYSIS of WTI CRUDE OIL

WTI appears to be consolidating back into the trading range after posting another downtrend last week.

Resistance could be found at the 73.93 level, which is just above the recent high of 73.89. The 21-day simple moving average (SMA) is just above these levels and could offer resistance. Further up, the 34-day and 100-day SMAs could offer resistance, currently at 76.35.

On the downside, support could be at the breakouts at 66.82, 66.12 and 64.36 or further down at the earlier lows of 63.64 and 62.43.

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