During Wednesday’s Asian trading session, WTI crude oil failed to extend its previous recovery rally and dropped toward $37 level mainly after an unexpected build in the US crude stocks data, as published by the American Petroleum Institute (API) late Tuesday which eventually fueled the prospect of oversupply.

On the other hand, the bearish trend in crude oil could also be attributed to the second wave of the coronavirus pandemic, which threatened to halt the recovery in demand and exerted some downside pressure on oil prices. At press time, WTI crude oil prices are currently trading at 37.88 and consolidating in the range between 37.20 and 37.91. At the data front, the latest API data showed that US crude inventories increased by 3.9 million barrels in the week to June 12 to 543.2 million barrels versus expectations for a draw of 152K barrels.

Moreover, China’s decision to stop air travels and impose further lockdown restrictions as the second wave of the pandemic has started to hit China, with the new cases rose above 557 so far, also exerted pressure on crude oil prices. The restrictions impose threats on demand for crude oil as it has severely affected the prices before. On the other hand, Japan, the US, and Germany also reported fresh cases that eventually fueled the concerns of pandemic wave 2.0 and exerted some downside pressure on crude oil prices. As a result, the US 10-year Treasury yields fell by 2.3 basis points to 0.731%. In the meantime, Japan’s Nikkei 225 and US stock futures printed mild losses at press time.

The broad-based US dollar took bids on the day at the USD front, mainly after the US retail sales rose more than expected in May. The retail sales record percentage increase by 17.7% during May. The US dollar was further supported by the fresh risk-off market sentiment triggered by the intensified odds of a second wave of coronavirus. The strength of the US dollar eventually kept the oil prices lower as the oil price is inversely related to the price of the U.S. dollar. The US Dollar Index that tracks the greenback against a basket of other currencies gained 0.07% to 97.002 by 11:57 PM ET (4:57 AM GMT).

However, the risk-off market sentiment was further strengthened by the India-China tussle, while tensions between North Korea and South Korea also exerted an additional burden on the risk-off momentum, which undermined the prices of crude oil. Apart from this, the latest report suggested that the export of Saudi oil to the US has dropped to its lowest level in 35 years due to the self-imposed output cuts.

Looking forward, markets will keep their eyes on the official US government data on the weekly stockpiles, published by the Energy Information Administration (EIA) later today at 14:30 GMT. At the economic front, the second round of Federal Reserve Chairman Jerome Powell’s congressional testimony and the US housing data will provide additional directions.

Daily Support and Resistance

S1 30.71

S2 33.6

S3 35.48

Pivot Point 36.5

R1 38.37

R2 39.39

R3 42.29

WTI crude oil is gaining support above 37.15 level. Above this level, WTI has odds of bullish trend continuation, which can lead prices higher until 39.35 level. While the bearish breakout of 37.2 levels can extend to selling until 36.63 level, on the lower side, violation of 36.65 can cause a drop until 34.63 today.

Good luck!