Crude Oil Prices Drop After Weaker China PMI, Viral Resurgence
CRUDE OIL PRICE OUTLOOK:
- Crude oil prices retreated after China reported the slowest pace of expansion in factory activity in 17 months
- China reported 75 new coronavirus cases in over 20 cities on Sunday, dampening the energy demand outlook
- WTI attempts to breach a trendline resistance, opening the room for further upside potential
Crude oil prices pulled back during Monday’s APAC mid-day session after rising 2.2% over the past week. The release of poorer-than-expected China NBS manufacturing PMI figures weighed on energy prices, as the world’s second-largest economy is struggling to maintain growth momentum amid viral resurgence. The official factory activity gauge slide to 50.4 in July from 50.9 in June (chart below), marking the slowest pace of expansion since February 2020.
The rapid spread of the Delta variant of Covid-19 led to a new round of lockdowns around the world, casting a shadow over the outlook for energy demand. China on Sunday reported 75 new coronavirus cases in more than 20 cities, with the majority linked to the Nanjing airport cluster. Millions of people are undergoing Covid tests and travel restrictions were imposed on the affected areas.Thailand is set to expand its quasi-lockdown measures, and Sydney has extended lockdowns for 4 more weeks through August 28th. Tighter travel restrictions and social-distancing measures point to softer fuel demand in the months to come, limiting the upside for oil prices.
China NBS PMIs – Past 12 Months
Meanwhile, a spat between Washington and Tehran about an attack on an Israel-linked oil tanker lowered the chances for the two sides to strike a nuclear deal. This hints that Iranian oil may take longer to join global supply, alleviating pressure on crude prices.
Technically, WTI is attempting to breach the trendline resistance as indicated on the chart below. A successful try may open the door for further upside potential with an eye on 76.50 – the 161.8% Fibonacci extension and the previous high. An immediate support level can be found at $73.26 – the 127.2% Fibonacci extension.
The MACD indicator formed a bullish crossover above the neutral midpoint, suggesting that near-term momentum may have turned positive.
WTI Crude Oil Price – Daily Chart
--- 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.