WTI Crude Oil Prices Drop to $37 Marks – Risk-off Market Plays on Risk Sentiment
Arslan Butt • 3 min read
The WTI crude oil prices failed to continue Friday’s bullish move. They dropped to the $37.75 level, while representing 1.22% in declines on the day, mainly due to the risk-aversion market sentiment, backed by the relentless spread of the coronavirus. This recently overshadowed optimism regarding the reopening of the economy, and contributed to the losses in oil. On the other hand, the geopolitical tension between the U.S. and the rest of the global economies, like the European Union (E.U.), the U.K., China, and Canada, also exerted some downside pressure on the risk sentiment. At the moment, the WTI crude oil price is trading at 37.77 and consolidating within the 37.59 to 38.19 range. However, the board-based weakness of the U.S. dollar turned out to be one of the key factors that has kept a lid on any additional losses in oil, at least for now.
As we have already mentioned, the reason for the risk-off market sentiment could be associated with the fresh reports on the coronavirus (COVID-19) outbreak, which indicate that the pandemic has already cost approximately half a million lives. Texas registered seven consecutive days of over 5,000 new cases by the weekend, whereas California’s State Health Department said cases had risen by 4,810, to a total of 211,243 as of June 27. The figures from Los Angeles County had risen by a near-record figure of 2,542, to a total of 97,894 by Sunday. The risk-off market sentiment was further bolstered by the announcement that China would impose heavy lockdown restrictions for the Anxin County, similar to the restrictions in Wuhan during the early days of the outbreak of the virus. In the meantime, Tokyo has registered the highest figures for new infections since the cancelation of the national emergency in late-May. However, India and Brazil have reported over 10,000 cases daily. It should be noted that the second wave of outbreaks were reported in several countries, including China, New Zealand, and Australia, which eventually urged governments to impose restrictions again.
On the other hand, U.S. President Donald Trump’s back to back warnings about imposing fresh tariffs on imports from the E.U., the U.K., and Canada turned out to be one of the key factors that kept the tone of the market under pressure. Moreover, the fears of anti-dumping charges on Asian tire manufacturers, triggered by the White House, also weighed on the market mood and commodities during the early part of the year. Apart from this, the US-Iran and China-India conflicts remained on the cards, causing oil traders to remain cautious. It should be noted that the Indian government considered imposing restrictions and higher tariffs on Chinese companies and goods, which eventually began to weigh on the market’s risk-tone sentiment. However, the fears of shutting out Chinese investment weighed heavily on India’s already weak economy.
As a result, the U.S. 10-year Treasury yields remain depressed, at around 0.635%, while Japan’s Nikkei had fallen by 1.60%, to 22,130 at press time. Moreover, the S&P 500 Futures also dropped by 0.45%, to 2,989, by press time, demonstrating a risk-off mood. Despite the intensifying fears of a second coronavirus wave, coupled with geopolitical concerns, the broad-based U.S. dollar failed to maintain its early-day gains, dropping at least for now, a fact that was possibly backed by the pickup in the U.S. bond yields. However, the losses in the U.S. dollar has kept a lid on any additional losses in crude oil, as it has an inverse relationship with oil prices. At the same time, the U.S. Dollar Index that tracks the greenback against a basket of other currencies had dropped by 0.11%, to 97.293 by 12:50 AM ET (5:50 AM GMT).
Regarding the oil-specific data, Baker Hughes US Oil Rig Counts dropped for 15 weeks in a row during Friday’s release, which favors the oil prices. However, with only one closure to 188, the weakness seems to be receding. The market participants will keep their eyes on the trade/virus updates, due to the lack of significant economic data to be published today. Apart from this, Tuesday’s official PMI figures from China and Thursday’s U.S. employment data for June will be key for this week’s calendar.
Daily Support and Resistance
Pivot Point 38.48
WTI crude oil has tested the double bottom level of 37.20, and above this, the next resistance holds at around the 39.90 level. Crude oil may find immediate support at the 37.20 level, while the bearish breakout of the 37.20 level can lead to continued lower crude oil prices, at 35.25. The MACD and RSI are bolding crossings over into the bullish area, and this suggests that there is some potential for additional buying in crude oil. The idea today is to take a buy trade over the 39.45 level, to target 39.90 and 41. Good luck!