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WTI is testing key support as bull's hopes balance on a US/sino trade-deal signing

  • WTI prices trending down to test the 200-DMA.
  • Iran/US tensions have eased and markets are looking at the demand fundamentals again.

West Texas Intermediate crude oil is currently trading at $58.16 having travelled between a low of $57.97 and $59.26, -1.71% on the day so far and well below the $65.65s post Iranian missile strikes on Iraqi targets.

We witnessed aggressive sell-side activity on the latest EIA release (+1.1 million vs. -3.5 million expected) to the 59.15s, into the Wednesday’s NY close and its been downhill ever since to channel support and the 200-day moving average. Key industry reports from the EIA, IEA and OPEC will be closely watched this week.

Meanwhile, the de-escalation of US-Iranian tensions in the aftermath of the killing of Souleimani had kicked off a noteworthy round of CTA selling in energy markets, according to analysts at TD Securities who argued that it "provides a significant headwind to further gains, largely concentrated in WTI crude."

"WTI's backwardation is also narrowing sharply, which is firmly in line with our expectations of a surplus in 2020H1."

Time to focus on fundamental demand issues

With tensions between the United States and Iran cooling, investors have had time to focus on fundamental demand issues –  immediate support could stem from the signing of the so-called, 'phase-one deal' between the US and China. There were reports today that the Chinee delegation has arrived safely in Washington. the signing ceremony is scheduled to take place on the later 15th this week. The US has invited at least 200 people to a ceremony for the signing, but the two nations have not yet finalised details of what will be signed, White House officials said last week.

WTI levels

The price is testing the 200-day moving average and rising channel support around a 50% mean reversion of the October rally. 

 

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