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WTI at risk as Asia-Pacific markets open

Crude oil prices crushed as futures market entered contango Friday; cautious risk aversion on Wall Street sets sour tone for Asia trade and WTI Ascending Triangle breakout continues to gather momentum.

Source: Bloomberg

Asia-Pacific market briefing

Crude oil prices are looking vulnerable as the new trading week gets underway. On Friday the front-month spread in WTI futures went into contango for the first time in about one year – see chart below. This is what happens when the futures price is higher than the spot level, often an issue of near-term supply-demand imbalances. For the oil market, this is very bearish.

This past week, we have seen a slew of hawkish Fedspeak cross the wires. The messages coming from officials have been straightforward. While the pace of tightening is likely to slow ahead, the Federal Reserve remains committed to raising rates. St. Louis President James Bullard noted that at a minimum, he sees rates around 5 – 5.25%.

In fact, this past week, news flow from central bank officials has been helping to cool the decline in Treasury yields and bolster the US dollar. A combination of global monetary tightening and a rising Greenback are working in tandem to depress oil prices. This is despite recent efforts from OPEC+ members to reduce output ahead.

Crude oil futures front-month spread

Source: TradingView

Monday’s Asia Pacific trading session – watch out for sentiment

Monday’s Asia-Pacific trading session is looking fairly light. New Zealand credit card spending will cross the wires at 2 GMT, but NZD/USD is likely awaiting this week’s RBNZ rate decision for its next big move. The cautious risk aversion from Friday’s Wall Street session may set a sour tone for markets to start things off. That may place crude oil prices at risk.

Crude oil technical analysis

Crude oil prices have continued to make downside progress below an Ascending Triangle chart formation. The ultimate target of the triangle could set WTI on course to breach the September low at 76.281, exposing the 100% Fibonacci retracement level at 72.249. Otherwise, a turn back higher places the focus on the midpoint of the extension at 82.934.

WTI daily chart

Source: TradingView

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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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