Crude Oil’s Bullish Run Continues Despite End Of US-China Trade Deal
Arslan Butt • 3 min read
WTI crude oil prices failed to extend their overnight gains and dropped from the intraday top to $40.40 while represented 0.52% losses on the day mainly due to the fresh risk-off wave in the market sentiment triggered by the intensified tension between the US and China. The fresh cases of coronavirus fueled the fears of the second wave, which made investors cautious about the recovery of oil demand, which is not suitable for the energy benchmark. On the other hand, the broad-based US dollar strength triggered by the risk-off-market sentiment also kept the oil prices lower. At press time, WTI crude oil is currently trading at 40.54 and consolidating in the range between 39.77 and 41.23.
However, the risk-off market sentiment was bolstered by the intensifying tension between the United States and China over the trade deal. It should be noted that the White House adviser Peter Navarro recently told Fox News that the long-running trade deal between US-China was over as China did not reveal the virus news when they came here on January 15th to sign the phase one trade deal. At the same time, China had already sent thousands of people into the US to spread coronavirus.
The risk-off market sentiment was further bolstered by the latest coronavirus (COVID-19) figures as Beijing city reported 13 new coronavirus cases as of June 22 vs. 9 cases reported a day earlier. In the meantime, the health authorities in South Korea stated that they are in the middle of a “second wave” of novel coronavirus infections around Seoul, which weighed on the risk sentiment.
The risk sentiment got some support after Navarro clarified that his comments were taken wrongly by the market, and the phase-one pact was on track. At the same time, the US President Donald Trump also tweeted that the agreement was “fully intact,” which eventually turned out to be one of the key factors that kept a lid on any additional downbeat sentiment in the market. It is worth recalling that crude oil prices rose earlier to over a three-month top of $41.25, possibly due to the optimism about the potential additional stimulus plans by the US and Spain, which initially boosted the risk-on sentiment and gave support to prices.
The earlier gains could also be attributed to the increased efforts to speed up the economic recovery by governments worldwide. The fresh optimism about oil demand after easing lockdown restrictions, which initially underpinned the global stocks and US equity futures, helped boost the appetite for other higher-yielding assets such as oil.
At the USD front, the broad-based US dollar stopped its earlier losses and took modest bids on the day, mainly due to the intensifying trade tensions between the US-China even as the surging coronavirus cases also kept the risk sentiment sour. However, the gains in the US dollar turned out to be one of the key factors that kept a lid on gains in oil prices as the price of oil is inversely related to the US dollar. Whereas, the US Dollar Index that tracks the greenback against a basket of other currencies was up 0.01% to 96.998 by 12:07 PM ET (5:07 AM GMT). Looking forward, the US-China updates and the pandemic updates will likely entertain the market players. The latest US weekly stockpiles scheduled to be published by the API later today at 21:30 GMT will be essential to watch.
Daily Support and Resistance
Pivot Point 39.54
Crude oil seems to violate the ascending triangle pattern, which was providing resistance at 40.45 level. Continuation of a bullish bias can extend to buying until 42.45 level while the upward trendline supports WTI crude oil prices around 40. On the 4 hour timeframe, the 50 periods EMA is also supporting it around 38.85 level. Let us consider taking buy trades today over 40.35 level to target 42.