WTI and Brent crude oil prices are trading lower by -0.2% at $52.85 and $61.40 per barrel respectively during the European trading session after the bearish API oil inventory report and the worries of global economic slowdown which might weigh on the oil demand growth.

The unexpected build-up of the US inventories capped the yesterday price rebound towards $54, adding some selling pressure during the Tuesday’s Asian trading session.

 

Bearish API-American Petroleum Institute:

The API-American Petroleum Institute reported last night an unexpected increase of the US oil inventories by 3.5 mbpd vs expected draw of 850k bpd to 478 million barrels for the week ended May31. Later today, the US Energy Information Administration (EIA) will release its weekly inventory data where the market expects a draw of -1.7 million barells. In case the new data shows a fresh build of inventories than the expected draw, then the oil price might go under pressure.

 

Interest rate cut: 

The oil prices rebounded yesterday from the 4-month lows of $52 to near $54 as the markets calmed from the comments of the Federal Reserve Chairman Jerome Powell, saying that the Fed would respond "as appropriate" to the risks posed by a global trade war and other recent developments.

 

Crude Oil & US equity index: positive correlation

Crude oil price has been moving together with the US Equity markets with positive correlation since last year. Both crude oil price and S&P index peaked last October 2018, bottomed together near Christmas Eve 2018 and then had a strong 4-month rally until late April 2019.  both assets have pulled back as the market sentiment deteriorated amid the escalating trade tension which might impact negative the oil demand growth and the corporate revenues.

Therefore, possible de-escalation of the trade tension and removal of the tariffs might recover the market sentiment in the market, sending back the investors to risky assets and especially towards the Crude oil and Equities.

 

Russia’s oil output falls to 3-month low due to contamination crisis:

The Russian average oil output for June1-3 was only 10.87 mbpd, down from an average of 11.11 mbpd in May, which is the lowest production since 2016. The contamination crisis started back in April when was discovered chlorine in the Urals crude in the Druzhba pipeline which supplies Russian oil to the Eastern European refineries. The pipeline was shut-down as the refineries denied to buy dirty crude oil which could damage their refineries equipment

 

Technical Picture:

WTI oil price lost nearly 20% since it peaked at $66 back in late April 2019. The $15 drop from the highs in just only 4 weeks, indicates that the price fell too far and too fast, creating oversold conditions as the daily RSI remains around 22, which is below the 30 oversold territory level.
Due to rapid drop of the price, we might expect a short-recovering rebound towards $56, otherwise, if price fail to rebound and pushed below $50 level, then it would be a very negative development for the price of WTI which it might retest the last year’s lows of $42.

 

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Vrasidas Neofytou

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