Oil Recovery Stalls at the 50 SMA on Recession Fears
Crude Oil opened with a large gap at the beginning of April, after OPEC+ decided to cut production in a surprise move. Buyers pushed higher, with US WTI crude reaching around $83.50, but we saw a reversal after the failure to break above the 200 daily SMA, while the US economy has been increasingly showing signs of weakness since then, which weighed on the market sentiment and on Oil prices.
Last week, the banking jitters returned as JP Morgan was forced to take over First Republic Bank, which accelerated the decline in crude Oil. US Oil fell to $63.80 by Thursday, but we saw a quick reversal on Friday, as buyers pushed the price above $70 and today the bullish momentum has continued during the European session, with WTI around $10 off the lows.
Oil buyers continued to remain in charge earlier today, following the recovery toward the end of last week. The market sentiment was lifted by the positive US jobs report, which had a positive impact on most risk assets. The report showed that last month, the US added 253K non-farm jobs, well over expectations of 160K and the revised figure of 165K from March. Additionally, the unemployment rate dropped to 3.4% in April, reaching its lowest level since 1969.
The market mood was further boosted by Chinese tourist travel figures, revealing that 274 million domestic trips were taken during the Golden Week holiday period. This is seen as a positive sign amidst overall market disappointment regarding the economic rebound in China following its reopening after three years of coronavirus lockdowns.
Now some Oil traders suggest that last week’s decline in Oil prices is over and Oil is reaching a point of stabilization. they anticipate a notable recovery in the upcoming quarters, although with the recession fears looming, that is questionable. The decline last week which went on for the third consecutive week, represents the longest period of losses so far this year. However, some market watchers believe that this downward trend may soon reverse. But, the bullish momentum has faded now after buyers reached the 50 SMA (yellow) on the H4 chart, and we decided to open a sell Oil signal, since Oil looks overbought now, so it is time for a retreat lower.
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