WTI Breakout Extends on Chinese Optimism & Weaker USD

WTI CRUDE OIL (CLc1) TALKING POINTS

• China’s push for economic growth sees rally in crude oil prices.
• Weaker dollar assisting WTI bulls but for how long?
• Falling wedge breakout bringing into consideration the $80 resistance zone.

WTI CRUDE OIL FUNDAMENTAL BACKDROP

WTI crude oil found some much needed support this Thursday after yesterday’s positive reaction to the significant decline in crude oil stocks as released by the EIA weekly report. The move higher today was prompted by China restating their focus to inspire economic growth in 2023 thus helping the demand-side influence for crude oil to be revised higher. China being the worlds largest consumer and importer of crude oil naturally sways the overall price depending on the state of the economy – positive correlation. While COVID remains a limitation in China, should Chinese authorities manage to stifle the virus situation as well, markets could really maintain higher levels of risk appetite giving crude oil some backing against global recessionary fears.

Looking at the USD, a slower start to the day has heightened the impact of the Chinese influence but looking ahead, U.S. GDP could weigh on crude oil prices if actual data comes in as expected (see economic calendar below). A positive quarter is anticipated which would bring the U.S. its first expansionary quarter for 2022. Another crucial reading will come from core PCE prices whereby another decline could limit USD upside and bring dovish pressure back into markets.

ECONOMIC CALENDAR

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

BRENT CRUDE (LCOc1) DAILY CHART -UNDATED

Chart prepared by Warren Venketas, IG

Daily WTI crude oil price action has managed to maintain the falling wedge (black) breakout seen yesterday and now looks to test the psychological $80/barrel resistance handle. The Relative Strength Index (RSI) has recently pushed above the midpoint 50 mark indicative of bullish momentum taking preference. The U.S. GDP release will be key for today and should provide short-term directional bias as to whether this upside impetus will continue or not.

Key resistance levels:

Key support levels:

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are NET LONG on crude oil, with 64% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we arrive at a short-term bullish bias.

Contact and followWarrenon Twitter:@WVenketas