USOIL Rebounds as Demand Fears Ease & Looks to Critical Tech Levels

  • USOil
    (${instrument.percentChange}%)

USOIL Analysis

The commodity slumped to its third straight losing week and to the lowest level in more than a year, due to fears of recession that can weigh on demand. China's PMI printed 49.2 in April, showing that factory activity contracted for the first time this since December, in the world second largest consumer of oil. Furthermore, banking fears flared up again in the US, with regional lenders in the spotlight. Regulators facilitated the sale of troubled First republic to JP Morgan Chase [1], but then PacWest's stock slumped as it continues to explore "strategic asset sales". [2]

Fears of recession eased however in the last days of the past week, helping the oil demand outlook, due to a series of factors, such the first expansion since late-last year in manufacturing PMI and the strong services PMI. Most importantly though, the US Fed opened the door to a pause of its aggressive tightening cycle [3], after the March 2022 lift-off. This allowed markets to cheer Friday's strong jobs report as a sign against recession, rather than focusing on its monetary policy implications. Furthermore, domestic trips in China for the five-day holiday break that began on April 29, surged more than 70% compared to last year. [4]

The improvement in sentiment allowed USOil to post a significant rebound. This brings the critical 75.60-94 region in its crosshair, which includes the EMA200 and the 38.2% Fibonacci of the 2023 high/low drop. Daily closes above it will shift immediate bias on the upside, but we are cautious at this stage for bigger advance that would challenge 80.95.

On the other hand, fears around US banks and economic slowdown don't go away, while economic indicators from China are mixed – factors that pose headwinds for USOil. As long as the rebound is contained below the aforementioned key resistance, risk for new slide towards 62.42-61.72 remains in play. However, sustained weakness continues to look difficult given the OPEC+ production cuts.

Trade the News: View our Economic Calendar

Markets now expect the latest CPI inflation figures from the United States and China, for a look on consumer demand in the biggest economies of the world.

Nikos Tzabouras

Senior Financial Editorial Writer

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

1

Retrieved 08 May 2023 https://www.fdic.gov/news/press-releases/2023/pr23034.html

2

Retrieved 08 May 2023 https://www.pacwestbancorp.com/news-market-data/news/news-details/2023/Pacific-Western-Bank-Issues-Update/default.aspx

3

Retrieved 08 May 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230503.htm

4

Retrieved 29 Feb 2024 https://english.www.gov.cn/news/202305/08/content_WS64585b8bc6d03ffcca6ece32.html

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