Talking Oil

Oil is trading higher today, along with other risk assets. A pause in the US yield rally allowed equities to catch some breather and improved sentiment towards energy commodities and industrial metals. However, the outlook for oil is far from clear as there are a number of contradicting factors. On one hand, we have a risk of a total embargo on Russian oil by the West, what would likely exert an upward pressure on prices. On the other hand, the pandemic situation in China and the country’s response to it creates a risk of an economic slowdown in the world’s second largest economy. As China is a major consumer and importer of oil and industrial metals, lower demand from this country could have a visible impact on oil prices. Major commercial banks continue to lower Chinese GDP forecasts for 2022 with Morgan Stanley being the most recent one to do so (revision from 4.6 to 4.2%). These two factors – Chinese slowdown and embargo on Russia – are the main drivers of moves in the oil markets now.

Taking a look at Brent chart (OIL) at H1 interval, we can see that the price bounced off the $100.00 per barrel mark yesterday in the evening and managed to climb to the $103 resistance zone. However, an upward move was halted there and a pullback can be observed at press time. It looks like another lower higher in the current short-term downtrend structure may have been painted and now the price may look back towards the recent low in the $100 area. On the other hand, should bulls regain control and push the price above $103 area, attention will shift to the upper limit of a local geometry at $104.35.

Source: xStation5

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