Crude Oil Today - Support holds causing a sharp bounce after the overnight fall

Market Analysis /
Greg McKenna / 14 Aug 2018

Welcome to Crude Oil Today, my brief look at what's happening in oil markets and what it might mean for prices. 

As ever, feedback welcome

QUICK SUMMARY

Amid the turmoil and concern about emerging markets and the global economic backdrop that flowed from the funk yesterday oil came under a little pressure. But it was the idiosyncratic news of a Cushing build and and OPEC downgrade to demand which saw prices drop quickly for WTI and Brent. 

And then they bounced very sharply - from very important support for both these benchmarks such that 2% losses are now just 0.35% for WTI at $67.40 and around 0.1% for Brent which is trading at $72.80.

BIGGER PICTURE

As noted above, oil was down early on a combination of a number of factors, but I haven’t yet found a satisfying reason for the very substantial bounce other than the technical support levels last nights lows touched. I’ll get to the chart below, but in the meantime the reasons for the falls seem to have been sourced in growing concern about the impact of the Turkey and rolling EM troubles on growth.

Specifically also last night, there seems to have been data from private firm Genscape suggested there had been a build in Cushing – WTI delivery hub – of 1.7 million barrels over the past week to August 10. That sent prices down around $1 a barrel.

Elsewhere we heard also that the Saudis have cut production but that also OPEC has dropped its demand prediction a little for 2019 to 32.05 million barrels per day – a fall of 130,000 bpd from the last update.  OPEC cited global economic concerns flowing from trade tensions but still believe “healthy global economic developments and increased industrial activity should support the demand for distillate fuels in the coming months, leading to a further drawdown in diesel inventories”.

Hope or reality? The CRB, copper, and Aussie dollar moves might suggest there are more concerns than OPEC would like to entertain. We’ll see in time. For the moment though the price action is key.

So check out the chart below of the bounce of Brent from that critical support zone I’ve been talking about for a while now. It reinforces to me that this $70.50/71 in Brent terms and $65.60/66.30 region in WTI are the levels that need to break to turn the consolidation into a deeper retracement.

Click on me, I'll expand
Click on me, I'll expand

DATA: 

Yesterday’s Chinese loans and money supply data suggested the re-liquification efforts of the PBOC might be gaining some traction. But we’ll get proof or otherwise today with the release of the monthly triple-treat of retail sales, industrial production, and fixed asset investment for July. We’ll also get the NAB business survey out here in Australia and Japanese industrial production in our time zone.

Tonight, it’s German Q2 GDP and July inflation data as well as UK employment and the second read on EU Q2 GDP. The ZEW economic conditions and sentiment is also out for Germany while export and import prices are out in the US before the API crude data tomorrow morning.

Have a great day's trading.

Greg McKenna

Chief Market Strategist

gregmckenna.com.au

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