Oil prices have been running higher over the last few weeks on production cuts, hopes of economies running again and the latest OPEC+ production cut extension. However, most recently with the Fed holding back from Yield Curve Control and the risks of COVID-19 second waves returning to the forefront of people’s minds the case for global demand rising any time soon seems pretty unlikely. There are also some further reasons for oil to face pressure to the downside from Bloomberg this week.
Reasons for oil to struggle
- The latest fuel stockpiles in Singapore last week were greater than 56 million barrels. This is the highest level in four years. The stockpiles here raise questions about the effectiveness of the OPEC+ extended cuts.
- Sinopec, which is China’s top exporting oil company, has reduced exports for June by 50% from May’s level. This lack of demand signals that many economies are unable to imitate China’s economic recovery after re-opening.
- Finally, China’s net exports of refined oils marked up its first deficit since 2015. This, combined with all of the above, suggests oil recovery will be a bumpy road at least. See chart below:
Furthermore, Goldman Sachs has warned about an unsustainable rally across commodities in recent weeks. The combined picture is likely to keep oil prices capped for the future. Here are some of the key technical areas for sellers.
Expect sellers, if the situation remains the same for oil, from the 200EMA.
Another key place where we can expect sellers is on a re-test of the 4hr trend line below which broke out yesterday. A retest of this level should find sellers on the first test.