USOIL Pressured from Higher US Stockpiles & Soft Inflation from China
USOIL Analysis
Oil prices were helped after the US Fed opened the door to a pause of its year-long aggressive rate hiking cycle, but demand fears resurfaced due to weak data from China. The world's largest importer of oil has been recovering this year, after abandoning the strict zero-Covid policies, but some indicators point to sluggish growth. Thursday's data showed that consumer inflation (CPI) rose by an anemic 0.1% y/y in April and the smallest increase in more than two years. Factory gate inflation PPI dropped 3.6% y/y and the biggest decline in around three years.
US crude oil stockpiles meanwhile increased by 3 million barrels per day last week, in the first built in a month. Adding to it, concerns around the US banking sector persist, as troubled regional lender PacWest disclosed an approximately 9.5% drop in deposits last week [1] and its stock took another beating yesterday.
USOil enters its third straight losing day and moves towards its fourth negative week. This keeps risk for a return back towards the 62.42-61.72 region, although sustained weakness continues to look hard.
The Chinese economy is still projected to grow significantly faster than last year, with the International Monetary Fund maintaining its forecast for 2023 GDP of 5.2%[2]. Furthermore, OPEC+ announced further output cuts recently, which kicked in this month and are expected to push global supply lower. According to yesterday' Short-Term Energy Outlook (STEO), the US Energy Information Administration (EIA) expects "upward pressure" on crude prices in the coming months. [3]
Given China's reopening that is largely expected to drive oil demand and the impact of OPEC+ on the supply side, the recent 2+ year lows of USOil look like a bottom. The rebound from these levels give it the chance to challenge the critical 75.10-75.94 region. Daily closes above it would pose the downside bias, but as long as this does not happen, USOil is in a precarious position.
Nikos Tzabouras
Senior Market Specialist
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 12 May 2023 https://www.sec.gov/ix | |
| Retrieved 12 May 2023 https://www.imf.org/en/Publications/REO/APAC/Issues/2023/04/11/regional-economic-outlook-for-asia-and-pacific-april-2023 | |
| Retrieved 25 May 2023 https://www.eia.gov/outlooks/steo/pdf/steo_full.pdf |
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