Jun 22, 2023

The price of oil has continued to be weak but may look for a rally from support at $70.

USOIL Weekly Chart

USOIL Weekly Chart

Oil trades at $72.57 after continued weakness and could make a push for the $80 level this week.

Oil futures were lower by around 1% on Tuesday after forecasts for Chinese oil demand were weaker. Markets have been disappointed by demand from the world’s second-largest oil consumer and the limited cuts in China’s key lending rates.

Traders were hoping that China would push through larger stimulus measures to support the economy and its industries. China cut its benchmark loan prime rates for the first time in 10 months, but only by 10 basis points in the five-year LPR. The rate cut followed recent economic data that showed the country’s retail and manufacturing sectors are struggling to hold momentum from the reopening.

Analysts at China National Petroleum’s (CNPC) research arm reported that China’s oil demand will grow less than previously forecast as strong interest in electric vehicles continues to cut into gasoline demand.

China’s fuel oil imports were lower in May after seeing a ten-year high in April, while exports of marine fuels were higher, according to customs data.

The Chinese government met last week to discuss measures for expanding economic growth, and that led to some major banks cutting their 2023 economic growth forecasts for China. Citi and Goldman Sachs slashed their economic outlooks for China, following downgrades from JP Morgan, UBS, and Bank of America.

Crude prices were also dragged lower this week after Fed Chair Jerome Powell reiterated a hawkish stance on monetary policy. Richmond Fed President Thomas Barkin told reporters he was “comfortable” with further rate increases given that inflation was still not close to 2%.

“I think the oil prices are going to go down (to $60). They are heading lower because of the following reasons: First of all, the OPEC+ cuts reflect a tactical admission by OPEC and Saudi Arabia, a concession that they do not see oil demand rising in the future,” analyst Omar Rizvi told Yahoo Finance.

As the market is currently bearish on oil, that could be an opportune time to look for a low, as the $70 level appears to be supporting the price of crude going forward.

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