Oil picks up from 7 month low

Oil is rebounding in early trade on Thursday, up over 2%, as it claws back some of the heavy losses from the previous session.

WTI plummeted close to 5% on Wednesday, with both Brent and WTI hitting their lowest levels since January following an unexpected build in inventories, which added to concerns that the ongoing US – Sino trade dispute could dampen global oil demand further.

Today, the price of oil took a U – turn, recovering on a combination of:

Better than forecast Chinese trade balance data
Improved risk sentiment amid easing US – Sino trade tensions. This comes following a stronger than expected official fix for the yuan, reducing fears of a currency war.
A weaker dollar
News flow that Saudi Arabia, with other OPEC countries could take further action to support the price of oil.

Trade war rhetoric will continue to guide the oil market. However any sign of deeper production cuts from Saudi Arabia, the largest oil exporter will undoubtedly help stabilise the price of oil. Saudi Arabia won’t have an easy task convincing the other OPEC members, we only have to look back a month to see the difficulties there were to get the OPEC + group to agree to continue supply cuts. With this in mind the upside to this news flow could be limited.

Concerns over the impact of the ongoing US – Sino trade dispute are growing. The fact that Saudi Arabia is considering action to limit supply is sufficient to pause the current sell off for now. We suspect that the market will need further convincing to push today’s rally higher.

WTI levels to watch:

WTI is currently up 2.2% after dropping to a 7-month low in the previous session. The uptrend could continue whilst support holds at $52.25. A breakthrough this level could open the door to support at $51.18 prior to $50.50.

Conversely, should $52.25 hold, resistance can then be seen in the region of $53.50/60.

Source: City Index

Published: 08-08-2019