Happy Sunday, merchants.
We went through another week with nice gains from long-term trading in USD / CAD. All of this is due to crude oil, as fluctuations in crude oil prices have also caused huge fluctuations in the Canadian dollar. WTI caused crude oil losses for the seventh consecutive week amid growing fears of supply overload, even as major producers are considering reducing emissions.
On Friday, WTI crude rose 7.7% to $ 50.42 a barrel, the biggest overnight drop in three years and the lowest level in more than a year. In fact, Brent crude oil deadlines have also fallen below $ 60 for the first time since October 2017. In this update, we discuss the main reason behind sharp selling and what to expect next.
The main reasons why oil prices are low in 2018
Here are some of the reasons that further exacerbated Friday’s fall, during which WTI oil was flooded…
The US-China trade war
One of the main reasons for the sale is that the trade war between the United States and China is making the market uncertain. Trump is pushing for a 10% tariff to be raised to 25% for a $ 200 billion Chinese product. It is highly likely to hurt the Chinese manufacturing sector.
The decline in production means less demand for crude oil. As China is the main importer of oil, this mood threatens oil bulls.
According to a Reuters report on Friday, China ‘s demand for oil and gasoline has fallen to its lowest level in 13 months, another sign that the Beijing – Washington trade dispute is hurting the world’ s second – largest economy and one of its largest importers. energy related goods.
Iran Sanctions & Bearish Reversal
In September, President Donald Trump’s ongoing bid to sanction Iranian oil exports could have triggered a dramatic deficit.
It was then expected that U.S. sanctions on Iran’s energy industry, when it takes effect in November, could potentially raise the price of WTI oil above $ 80 a barrel. This is exactly how the market reacted. Investors began trading the crude oil with bullish sentiment and pushed oil prices to a four-year high of $ 76.88.
However, after oil prices peaked, Washington granted a temporary exemption to eight countries, including China and India, which are the largest buyers of Iranian oil.
Back in November, U.S. Secretary of State Mike Pompeo said eight essential oil importers, including China, India, South Korea, Turkey, Italy, Greece, Japan and Taiwan, would receive a 180-day exemption as part of the reintroduced sanctions, allowing them to buy Iranian oil if they there is a decrease in volume.
Exemptions from sanctions have further allayed concerns that the oil market is becoming a demand for oil. Expectations of weaker-than-expected global economic growth amid further concerns over oil demand amid ongoing trade conflict between the U.S. and China.
In response, all traders who held oil futures panicked and triggered oil sales, lowering the price of oil to $ 50 on November 23rd.
EIA Inventory Reports – Linking Structure
U.S. oil production rose nearly 25% this year to 11.7 million barrels per day (bpd), according to the Energy Information Office. This raises concerns that stocks are destroying demand. Major producers in Russia and Saudi Arabia also have record production.
As shown in the histogram below, the EIA has been producing a stock structure report since September 2018 that shows nothing but a lack of demand in the market.
Stronger dollar against crude oil – negative correlation
A string connects the U.S. dollar and crude oil because oil prices are set in dollars. Tighter US monetary conditions are an undesirable combination for Asian energy importers.
The U.S. central bank raised interest rates three times in 2018, which meant the U.S. dollar skyrocketed. A stronger dollar will make crude oil more expensive for the international trader, reducing demand for crude oil. Recalling the law of demand, a drop in demand causes a drop in prices.
The rise in the dollar has also contributed to the headwind of the commodity, as the dollar-priced asset becomes less attractive to buyers using other currencies as the buck strengthens. As you can see on the chart, the dollar index is peaking at $ 97, while crude is moving slowly at $ 50.19.
WTI Crude Oil – Weekly Technical Outlook
I’m afraid the technical side isn’t showing good news for oil buyers. Oil prices continue to fall dramatically and the past week has been horrible. Crude oil prices fell 7.7% to $ 50.42 a barrel, the biggest overnight decline in three years and the lowest level in more than a year.
Key technical information
Black gold has entered an oversold zone, indicating that sellers can now make a profit.
Immediate support is at a psychological level of $ 50, during which oil can go after $ 47.50 and $ 43.50. This shows that we can be close to a supportive area, but you don’t want to be the first to enter this market and try to pick it up.
Technical Levels – Swing Trading
Support the resistance
47,9 55,29
45,35 60,13
37,96 67,52
Traders are monitoring U.S.-China tensions for the time being and are likely to shift the focus to the G20 summit at the end of the month in Argentina, November 30-December 1. U.S. President Donald Trump is said to be meeting with his Chinese counterpart Xi Jinping to negotiate and if they both pursue a lenient customs policy, it will put tremendous selling pressure on the dollar.
Come on, a weaker dollar and a lenient customs policy could help boost oil. In the meantime, wait & watch for short-term intraday trading.
We wish you all a good and profitable week!