What if the Crude Oil price falls below $70.50? *Spoiler Alert* It’s not pretty

The Crude Oil price has retreated from last week’s high as the market digests the troubling surge in Delta Covid. But could it get much worse for WTI?

Front-month WTI Crude Oil futures are stable this morning, around $71.50, following yesterday’s 3.64% loss.

However, the calm may not last for long. If the Oil price breaks below $70.50, the next stop could be a long way down.

Not only is the price reacting to rising output from OPEC+. It must now contend with a slowdown in China, twinned with an alarming virus outbreak in the world second-largest energy consumer.

Saturday’s Purchasing Manager Index (PMI) data showed Chinese factory activity dropped to 50.4% in July.

Crucially, this is just above the 50.0 threshold that signals growth. The disappointing data was the lowest PMI print for more than a year. This contraction may signal a drop in demand for energy products when the Crude Oil price is at its most vulnerable.

Furthermore, the uber-virulent Delta variant Covid strain is spreading violently in the nation. Presently, more than 20 cities across China have reported cases. This has led to the return of lockdowns, with millions of people confined to their homes.

This has left WTI futures perilously close to testing a significant support level. Which, if fails, may lead to a violent re-pricing lower.

Nymex crude forecast

The Crude Oil price is attempting to bounce from the $70.50 support area. This is a previous level of resistance and support and, therefore, should be considered important.

The last test of the $70.50 support on the 26th of July resulted in a 5.30% rally to $74.23.

On that basis, if the price can sustain $70.50, the bulls will be encouraged. However, considering the increasingly deteriorating fundamentals, it may just be a matter of time before the $70.50 level is tested again.

The next support level is not seen until $65.00, around 8% lower.

Therefore the bulls will hope the support remains resolute. However, if it doesn’t, the bears will be firmly back in control of the Oil price.

Crude Oil price chart (4-Hour)

crude oil price

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