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Crude Oil Forecast: Delta Variant, Chinese Regulatory Measures Weigh on Prices

Crude Oil Forecast: Delta Variant, Chinese Regulatory Measures Weigh on Prices

Thomas Westwater, Analyst

Crude Oil Talking Points

  • Oil prices steady as Delta-variant Covid wave stokes concern
  • China ramps up regulatory oversight pressure on oil refiners
  • Technical picture shows a mostly neutral outlook in near term

Oil prices are holding steady following last week’s rebound as investors pause to evaluate economic impacts from the newest wave of Covid, driven by the highly transmissible Delta variant. On Monday, the United States confirmed that travel restrictions -- which bar entry for travelers from many areas in Europe, India, China, and South Africa, among others -- will be extended. In the Asia-Pacific region, Thailand and South Korea are reporting record cases, forcing policy makers to step up restriction measures.

Energy traders will be watching the Delta variant’s spread closely and monitoring restrictions across major economies to help gauge potential hiccups in demand over the coming weeks. That will likely also put inventory figures under higher-than-usual scrutiny. Last week, the Energy Information Agency (EIA) reported a surprise build in US stock levels for the week ending July 16. Analysts expect to see an inventory draw of 3.4 million barrels in Wednesday’s EIA report.

Meanwhile, Chinese oil imports fell to a multi-year low for the first half of the year in June. Beijing rolled back import quotas for this year’s second batch issuance, reportedly by as much as 35% from 2020. China uses a quota system to limit the amount of oil private refiners can order. In part of a broader crackdown, regulators are ramping up pressure on firms that sidestep the rules.

Crude Oil Technical Forecast:

Crude oil is trading just above the 72 handle after last week’s rebound as prices moderate in recent days. Breaking back below the 26-day Exponential Moving Average (EMA) may open the door for retesting a support trendline from March. A resumption of the prior trend higher will likely see resistance at the October 2018 high at 76.90. Prices briefly moved above that level on an intraday basis earlier this month but quickly reversed lower.

Crude Oil Daily Chart

crude oil

Chart created with TradingView

Crude Oil TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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