Daily Market Recap – USOIL Trading at 3-month lows

Oil prices have been hit by the “risk-off” mode that has gripped the markets, as concerns about the spread of Covid continuing to mount and the Fed hinting that tapering may take place this year. Prices finished lower for the fifth day in a row yesterday and look set to record another decline today.

From the Fed angle, several factors have emerged in recent weeks to explain the price decline that accelerated yesterday with the release of the Fed minutes:

- Bearish macroeconomic concerns continue to mount

- The spread of variant delta and new containment measures (particularly in China)

- Weaker than expected air passenger numbers this summer

- Concerns about inflation and rising interest rates

- Pressure from the U.S. on OPEC+ to restore supply to the market

- Signs that U.S. shale production is beginning to increase

It is still early to tell whether these factors will have a lasting impact on prices and demand in particular, but their emergence is enough to dampen price expectations in the short term with oil trading at a 3-month low on Thursday.

Ongoing concerns over the recent surge in covid cases have prompted traders to wonder whether a peak of global growth has been reached as countries restart imposing lockdown restrictions.

Indeed, the demand outlook has been particularly hurt by the sharp tightening of sanitary restrictions in major Asian countries since the beginning of the summer. Japan, Australia, and China have all progressively tightened health restrictions since the beginning of the summer as the number of infections increases at an ever-faster pace.

Meanwhile on the economic data front. The consumer confidence index disappointed strongly last week, as did U.S. retail sales earlier this week, and housing starts yesterday.

From a technical perspective, pressure is building on oil prices as evidenced by the recent early summer highs and lower lows.

(Chart Source: Tradingview 19.08.2021)

The price of WTI broke out of its downward triangle yesterday by closing below $65 support, setting the stage for a major bearish reversal. Below $65, the outlook will remain bearish and the next supports to watch will be the May low at $61.50 and the March low at $57.40.

The bearish outlook would be invalidated by a rebound above the recent high at $70.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.