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WTI: Mildly positive above $51.00 amid mixed plays of demand-supply and risk

  • WTI registers a three-day winning streak.
  • Risk-on helped markets earlier, talks of OPEC+ supply cut keep buyers happy off-late.
  • Pessimism concerning China’s coronavirus exert downside pressure.

WTI gains 0.4% while marking $51.40 as the quote during the initial trading session on Friday. In doing so, the black gold extends the previous two day’s recovery. Even so, fears of slower demand, mainly due to China’s coronavirus, cap the upside.

Despite witnessing an increase in inventory numbers, oil prices managed to recover following the latest activity numbers from the global powerhouses like the US, EU and the UK.

Also supporting the bounce are talks concerning an extension of the supply cut agreement by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia, mostly known as OPEC+. As per the latest report from Reuters, OPEC+ panel proposed 600,000 barrels per day (bpd) oil output cut, the same will start immediately and continue until June if agreed by all members. Following this, Russia’s Foreign Minister Sergei Lavrov said that they back the OPEC+ recommendation to deepen output cuts.

Even so, the energy benchmark’s reaction seems to be capped by the latest risk reset. The underlying reason could be traced from the renewed fears of China’s coronavirus. Not only RBA Governor Philip Lowe and Japan’s Economy Minister Nishimura but global rating giants like Moody’s and Fitch also portrayed the worries emanating from the epidemic.

That said, the US 10-year treasury yields snap two-day-old recovery to 1.63% whereas most Asian stocks are also negative, even if being mildly in loss, by the press time.

Looking forward, traders will keep eyes on the US employment data and Baker Hughes Rig Counts for fresh impulse. While January month employment numbers from the US are more likely to keep the US dollar on the front foot, a sustained decline in rig counts could help energy optimists. It’s worth mentioning that the US dollar is generally observed as having a negative correlation with commodities including oil.

Technical Analysis

10-day SMA, near $51.85 now, followed by January 29 top of $54.37, limits the quote’s short-term upside whereas $50.00 holds the key to the yearly low of $49.40 as well as late-December 2018 top surrounding $47.00.

 

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