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Despite oil prices edging higher, there are limitations

WTI crude oil moved higher over the past few days due to the weakening greenback and the easing of Shanghai's lockdown. However, a fresh catalyst emerged this week and may cool down the momentum.

Both U.S. West Texas Intermediate crude oil and Brent Crude have been inching higher over the past few days due to the weakening greenback and the easing of concerns as China lifts Covid-related restrictions in Shanghai.

However, a fresh catalyst that emerged early this week may cool down the momentum for the crucial energy.

First, the European Union seemly struggled to reach a final agreement on banning Russian oil following its invasion of Ukraine by the intended deadline, the end of the year.

Second, China's capital Beijing reported a record number of new Covid-19 cases on Monday, reviving concern that the nation's most important city may face a broad lockdown and impact the Shanghai's exit plan.

Thirdly, on Thursday the US will report the preliminary GDP data for Q1 as a revision of the advanced GDP data released last month, which showed an economic contraction of 1.4%. The upcoming print is anticipated to demonstrate a wide-range pullback from 6.9% growth in Q4 2021, primarily due to a record trade deficit and a decline in inventory investment.

Angst over the global economy has been ascending since early 2022. The recent data revealed US retail sales and the Q1 earnings have fuelled this concern to a lofty level. It must be said that the possibility of a recession in the US and elsewhere is now turning from 'likely' to 'possible'.

Nevertheless, it can't be ignored that the continued war in Ukraine means that supplies of oil to the rest of the world will be under pressure for the foreseeable future.

Technical analysis

The daily chart shows that the price of US crude is staying safely in the ascending trajectory with strong support from both the 20 and 50-days moving averages. The upper boundary of the tunnel should meet with the March high at 113.60 in the next couple of days and will play as a major resistance level and potentially a reversal point if the price fails to breakthrough.

In this scenario, the 20-day MA sits around $106.88, which will be the imminent support before the price moves towards the lower boundary at 102.8.

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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