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Crude Oil Recovers on Russian Energy Cuts Amid Global Growth Turmoil. Where to for WTI?

Crude Oil Recovers on Russian Energy Cuts Amid Global Growth Turmoil. Where to for WTI?

Daniel McCarthy, Strategist

Crude Oil, Gas, Russia, China, WTI, Brent, AUD, CPI, RBA, JPY, BoJ- Talking Points

  • Crude oil prices find support after Russia halted gas supply to Eastern Europe
  • Equity markets are in a flux as China’s lockdowns bite growth forecasts
  • Australian CPI beat expectations bringing a potential RBA hike into focus

Crude oil has jumped higher after energy prices soared overnight. Russia has cut supply to Poland and Bulgaria. European gas prices rose by more than 15%.

A concerning questioning is, who is next to face energy shortages? Germany? It has recently refused to pay Russia in Rubles and the latter is struggling to exchange in FX markets.

Russian weaponizing of energy is a worrying chapter in the Ukraine war.

The squeeze in gas prices lifted crude oil after Monday’s rout. The WTI futures contract is looking to break above US$ 102 bbl while the Bent contract trading above US$ 105 bbl.

China’s pursuit of a zero Covid-19 case policy and has seen large parts of the country go into lockdown with mass testing underway. This has seen many large ports, most notably Shanghai, grind to much lower capacity, clogging up global supply chains.

The markets outlook on growth has been subsequently put in a tailspin, sending global equity markets deep into the red across most bourses.

Ironically, Chinese and Hong Kong stocks have seen small gains today as the reported Covid-19 cases in Shanghai went lower and Beijing’s case numbers steadied after recent rises.

The Australia Dollar staged a rally after year-on-year CPI data came in at 5.1% to the end of March, well above the RBA’s target band of 2-3%. The RBA monetary policy meeting next week will be keenly watched for any adjustments in the cash rate.

The Japanese Yen was the notable underperformer ahead of tomorrow’s Bank of Japan meeting. Traders are looking for any commentary around the yield curve control for direction.

Later today, the US will see mortgage applications and wholesale inventories data. While the Federal Reserve is in a verbal media blackout, we will get data after the close today of the weekly change in size of the Fed’s balance sheet.

The full economic calendar can be viewed here.

Crude Oil Technical Analysis

The most recent peak and trough in WTI crude oil price share a similar characteristic. The high traded slightly above a resistant level and the trough traded just below a support level.

These false breaks may suggest that market liquidity is running toward stop loss take-outs, rather than building positions. From a technical perspective, this could indicate a market that lacks bullish or bearish conviction and is focussed on minimising losses.

Those stop loss take-outs have created a potential resistance zone at 108.75 – 109.20 and possible support area at 93.53 – 92.93.

CRUDE OIL CHART

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twitter

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

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