Crude oil rally likely to be limited

The latest crude oil prices closed with little change on Thursday. Both the Brent and WTI indices have risen more than 6% this week, as OPEC+ stunned the market on Sunday by cutting output by another 1.7 million barrels, following initial talks in November to cut output by 2.0 million barrels per day.

Also, crude oil prices were bolstered by US crude oil stockpiles falling more than expected for the second week in a row, indicating preparations for increased travel demand this summer. US crude inventories fell by 3.74 million barrels this week after falling by 7.5 million barrels the previous week, while US energy companies cut the number of oil rigs for the second week in a row this week, resulting in the number of rigs, a preliminary indicator of future capacity, being reduced by two to 590 this week.

Crude oil prices, however, are still restrained during this period by data from the US labor market, which indicates that economic development has begun to decline, particularly slower-than-expected growth in the US service sector. The number of people claiming unemployment benefits in the United States increased to 228,000, the highest in 17 weeks since Dec. 4, after nine straight weeks of increases above 200,000, signaling a recession, though it has a positive effect that is likely to reduce the US Federal Reserve's pressure on monetary policy.

On the other hand, economic activity in China's service sector recovered the fastest in two and a half years in March, as consumption began to revive. As a result, the number of new orders and jobs increased, and the Caixin/S&P Global Services Purchasing Managers' Index (PMI) surged to 57.8 in March from 55.0 in February, expanding for the third consecutive month and reaching its highest level since November 2020. The composite manufacturing and service activity PMI increased to 54.5 from 54.2 the previous month, the fastest increase since June last year.

Nonetheless, some market participants anticipate that crude oil prices will rise modestly over this period, citing OPEC+ production curbs and a reduction in US oil stocks as well as China's recovery as factors that will assist lift oil prices more than concerns about a worldwide recession.

However, investors in derivatives had different expectations. The amount of put options purchased (forecasting or hedging against falling prices) is significantly greater than the amount of call options purchased (forecasting or hedging against potential price increases), indicating concerns that crude oil prices may tend to fall. Additionally, before the market closes this week, investors are expected to pay attention to March's unemployment rate and Nonfarm payrolls, due this evening, which are expected to increase by only 238,000 in March, down from +311,000 the previous month, and may reinforce the start of the economic slowdown, putting further pressure on crude oil prices.

Data for Technical Analysis (5H)

Resistance : 80.74, 80.95, 81.28

Support : 80.08, 79.87, 79.54                              

5H Outlook

1H Outlook

Source: Investing.com             

Buy/Long 1 If the support at the price range 79.98 - 80.08 is touched, but the support at 80.08 cannot be broken, the TP may be set around 80.84 and the SL around 79.93, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 80.74 - 80.84, TP may be set around 81.23 and SL around 80.03, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 80.74 - 80.84 is touched, but the resistance at 80.74 cannot be broken, the TP may be set around 80.06 and the SL around 80.89, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 79.98 - 80.08, TP may be set around 79.67 and SL around 80.79, or up to the risk appetite.       

Pivot Points Apr 06, 2023 09:10PM GMT

Sources: Investing 1, Investing 2, Investing 3