Worries over inflation and the deteriorating Covid situation in India have capped the recent rally, sending the crude oil price sharply lower.
In a report released yesterday, I discussed some possible headwinds facing the oil market. The crude oil price exceeded my downside target of $64.20 and traded as low as $63.30 in yesterday’s sell-off.
So far, in Asian trading, the crude oil price is staging a recovery, and once again close to the $64.20 level.
If the market fails to recover the level in today’s trading it could lead to a steeper decline which would target the $60.60 low from April 21st.
The Colonial pipeline, which supplies 45% of the east coast’s energy needs, had shut down after suffering a cyberattack last week.
The pipeline carries over 100 Million gallons of Gas, diesel, and Jet fuel every day. The subsequent closure had seriously impacted supply. This had provided a boost for the crude oil price. Therefore it came as no surprise the market slid on yesterday’s news that the pipeline was re-open and would be at full capacity by this weekend.
Whilst there are signs that global demand is likely to improve in the second half of the year, traders are also closely watching the Indian Covid crisis. The country, which is the world’s fourth-largest importer of oil, has been struggling to contain the virus.
Alarmingly, cases of the new, and more virulent covid strain, are popping up in other countries. There is a growing concern that this could derail the global recovery just when countries start to relax their lockdown policies.
In addition, the market is also focused on central bank policy as inflation runs hot. Any indication that tightening may be brought forward would provide further downward pressure on the crude oil price.
The price finished yesterdays session bang on an acending trend line. This trend has been in place since the October $33.63 low and has been a good level of support.
Today’s close will decide whether the trend remains intact. In light of a close above the marker, I would consider the momentum to follow higher.
The reverse is true for a close below the trend line. In this instance, I see an increased chance of the Crude oil price testing the support April 21st low at $60.60, followed by the 100-day Moving Average at $58.77
Traders may wish to see how the market closes today. In my eyes, the final print will dictate the next material move in the Crude oil price.