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Crude Oil Prices Swing Lower on Demand Concerns, Strong USD

Crude Oil Prices Swing Lower on Demand Concerns, Strong USD

Margaret Yang, CFA, Strategist

CRUDE OIL OUTLOOK:

  • WTI crude oil prices erased earlier gains and swung lower, US Dollar gained
  • Demand outlook is weighed by Fed’s looming outlook of the economic recovery
  • Near-term momentum seems biased towards the downside, as the MACD indicator suggests

WTI crude oil prices (WTI) lost 4.7% so far this week, hit by a double whammy of strong US Dollar and a lengthy economic recovery forecasted by Fed members. A resurgence of coronavirus cases and a potential lockdown in parts of the EU also weighed on the energy demand outlook, resulting in unwinding activities.

A rally in the US Dollar also exerted downward pressure on commodity prices, with gold and silver plunging alongside crude oil prices. The US Dollar index climbed to a two-month high of 94.48 at mid-day trading hours in Asia.

The DOE report recorded a second weekly decline (-1.6 million barrels) in the US commercial crude oil inventory, and a sharp fall in the Gasoline stocks (-4.025 million barrels). Weekly changes in crude oil inventory have historically exhibited negative correlation with crude oil prices (chart below). Oil traders, however, seem not convinced by the data, as energy demand likely remains weak for the foreseeable future.

Crude Oil Prices Swing Lower on Demand Concerns, Strong USD

Source: DailyFX, Bloomberg

Meanwhile, Libya’s National Oil Corp (NOC) has opened another port for oil exports, and is likely to double the country’s oil production to 0.260 million barrels a day by next week, according to Bloomberg News.

Technically,the WTI crude oil price dived below its 50- Day Simple Moving Average (SMA) line and tested the 100-Day SMA at US$ 39.30. Its 20-Day SMA has crossed below both the 50- and 100-Day SMA, potentially forming a “Death Cross”. WTI may find an immediate support level at US$ 39.3 (100-Day SMA) and then US$ 38.85 (38.2% Fibonacci extension).

WTI Crude Oil PriceDaily Chart

Crude Oil Prices Swing Lower on Demand Concerns, Strong USD

IG Client Sentiment indicates that sentiment is mixed among retail oil traders, with 61% of position net long, 39% net short. As oil prices fell, traders trimmed some short positions (-5%) while staying par in long positions overnight. Compared to a week ago, however, traders have significantly unwound both short (-19%) and long (-12%) positions.

Crude Oil Prices Swing Lower on Demand Concerns, Strong USD

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

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

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