Crude Oil Prices Under Fire, US Retail and Consumer Trends Data Eyed

CRUDE OIL OUTLOOK:

• WTI crude oil prices set for the biggest weekly drop in four months
• Delta variant spread, OPEC+ deadlock putting pressure on prices
• US retail sales, consumer confidence reports now in the spotlight

Crude oil prices saw heavy selling pressure this week, with the WTI contact on pace for the biggest five-day drop since mid-March. Worries about slowing global growth and the follow-on headwinds for energy prices linked to the spread of the notorious Delta variant of the Covid-19 virus have been compounded by a lingering standoff over output levels between Saudi Arabia and the UAE.

The two powerhouse producers are struggling to agree on the appropriate size of a production increase for the OPEC+ group of top exporters, a forum that includes the OPEC cartel itself as well as like-minded external members (notably Russia). Traders are seemingly starting to worry that continued disagreement may see the consortium fracture, bringing on an output free-for-all that floods the market and sinks prices.

US RETAIL SALES, CONSUMER CONFIDENCE DATA IN FOCUS

Looking ahead, the spotlight turns to US retail sales data as well as the University of Michigan consumer confidence survey. Receipts are seen falling 0.4 percent in June while sentiment strengthens for a second consecutive month in the July report. Leading PMI survey data suggests retail activity slowed somewhat last month, though overall growth rates remained blistering.

The impact of reflation will be closely eyed. Labor shortages have driven realized and expected wage costs upward, which may be a boon for consumption in the near term. Pent-up demand coming online amid reopening from Covid-linked lockdowns is another tailwind. However, soaring prices may likewise undercut purchasing power, souring consumers’ outlook and crimping spending growth.

On balance, the appearance of resilience in the most important sector of the world’s largest economy may buoy the outlook for oil demand and nudge prices higher. Alternatively, sellers may have the upper hand if the data suggests that consumers’ exuberance is waning as growth rates start to normalize following the outsized surge from Covid-induced lows and cost burdens swell.

CRUDE OIL TECHNICAL ANALYSIS

Prices are testing swing-low support at 70.76 after a bearish Evening Star candlestick pattern seemingly marked a top below the $77/bbl figure. A breakdown confirmed on a daily closing basis may set the stage for a retest of the 66.76-67.98 area. Immediate resistance lines up in the 75.52-76.98 region, with a close above the latter seemingly a prerequisite for neutralizing near-term selling pressure.

Crude oil price chart created using TradingView

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--- Written by Ilya Spivak, Head Strategist, APAC for DailyFX

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter