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Crude oil update: prices retreat ahead of inventory reports as China virus cases stay high

WTI crude and Brent crude prices retreat in Tuesday’s Asia-Pacific trading; US inventory data in focus in the days ahead as China’s Covid woes linger and WTI crude oil’s technical posture is bearish below major moving averages.

Source: Bloomberg

WTI crude and Brent crude prices retreat in Tuesday’s Asia-Pacific trading; US inventory data in focus in the days ahead as China’s Covid woes linger and WTI crude oil’s technical posture is bearish below major moving averages.
Crude oil prices rose to start the week as a softer US dollar and supply concerns supported buying.

However, West Texas Intermediate (WTI) and Brent crude prices are pulling back through Asia-pacific trading. A breakdown in negotiations between Tehran and Washington helped drive prices higher. Iran’s response to a proposal presented by the European Union disappointed Western leaders.

Iran wants an investigation by the International Atomic Energy Agency (IAEA) to be halted, but that is off the table for the US and EU. US Secretary of State Anthony Blinken on Monday said a near-term deal is “unlikely.”

That commentary saw WTI trim its losses by nearly a full percentage point. German Chancellor Olaf Scholz shared Mr. Blinken’s sentiment. Israel is said to have shared concerning intelligence that Iran is very close to having enough weapons-grade uranium for a bomb.

China’s Covid-19 lockdowns continue to weigh on oil’s demand outlook. This morning, the National Health Commission reported 1,048 new cases for September 12. Beijing is unlikely to ease its stance on containing the virus before October. That is when President Xi Jinping is expected to secure a third term in office. However, speculation that a gradual easing of restrictions would take place in the months following the National People’s Congress (NPC).

For now, traders have their focus on inventory data due out over the next couple of days. On Tuesday, the American Petroleum Institute (API) will report crude oil stocks data for the week ending September 09. The Energy Information Administration’s data, which typically has more influence on markets, is due out the day after. Analysts expect the EIA data to show a 200k barrel reduction in crude oil stocks and a 633k barrel build in distillate stocks.

WTI crude oil technical outlook

Prices failed to clear the 61.8% Fibonacci retracement from the December 2021/March 2022 move after an intraday climb stalled just short of the 20-day Simple Moving Average (SMA). WTI’s technical outlook is skewed to the bearish side, as prices remain below their major moving averages and the RSI and MACD oscillators sputter out below their midpoints.

If Monday’s strength returns and prices clear the 20-day SMA (green line), the 90 psychological level poses a potential challenge before the 50-day SMA (blue line). A move lower would resume the broader downtrend. And a break below the September low at 81.21 is the worst-case scenario, which would bring prices to levels not traded since early January.

WTI crude oil daily chart

Source: TradingView

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This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. 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. See full non-independent research disclaimer and quarterly summary.

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