Crude Oil Prices May Fall as EIA Report Nears Amid China Lockdown Woes


Crude Oil, WTI, Brent Crude, Australia, China, EIA, Stockpiles – Talking Points

  • WTI and Brent crude oil prices stage rebound in Asia-Pacific trading after steep losses
  • Australian trade data points to the impact of China’s broadening Covid lockdowns
  • EIA inventory data is in focus for traders after the US API reported a surprise stock build

Crude oil prices are slightly higher in Asia-Pacific trading but remain sharply lower following overnight losses. West Texas Intermediate (WTI) prices fell nearly 6% throughout New York trading hours as several FOMC members spoke about the need to continue policy tightening. The Federal Reserve Vice Chair Lael Brainard said interest rates would likely remain elevated for some time. Rate traders are betting the Fed will deliver a 75-basis point rate hike on September 22.

Traders are also watching lockdowns in China as a growing threat to oil demand. China’s megacity Chengdu, the capital of Sichuan province, was scheduled to lift its lockdown on Wednesday. Instead, policymakers extended the order without providing a tentative exit date. The restrictive measures are in place across many of China’s cities. Estimates from various analysts peg the number of people under some form of restrictions at around 300 million people.

Australian trade data for July, released earlier today, highlighted the sprawling impact of a China muzzled by strict government intervention. Australia’s trade surplus fell to A$8.7 billion from A$17.1 billion in June. China is its largest export market, with coal, iron ore and other commodities making up a significant chunk of that trade. Chinese trade data for August was released earlier this week, which showed slowing exports—a concerning signal for markets because the Asian country serves as the largest exporter of goods. A global tightening in monetary policy is throttling the demand for goods, crude oil likely included. The European Central Bank (ECB) is expected to hike its benchmark rate by 75 bps tonight.

The supply side of the market is weighing on prices as well. US oil stocks rose 3.64 million barrels for the week ending September 02, according to the American Petroleum Institute (API). That was well above the 733k draw that analysts expected and over six times larger than the previous week’s build. The US Energy Information Administration’s weekly report, which provides a more comprehensive accounting of oil stocks and distillate products, is due to cross the wires at 15:00 GMT.

For now, economic growth concerns remain the driving force for crude oil prices. That makes China and its appetite for snap lockdowns one of the biggest threats to the commodity. And the central government is unlikely to ease its approach this year. The Communist Party’s National Congress will likely secure a third term for President Xi Jinping in October. A withdrawal from the country’s Covid policy would show weakness and instability if announced close to the event.

WTI Crude Oil Technical Outlook

Prices pierced through a level of resistance turned support overnight. The big drop came after a Death Cross signal generated by the 50-day Simple Moving Average crossing below the 200-day SMA. The 80 psychological level may support prices if bears regain control. A break below that level would put the 78.6% Fibonacci retracement on the table. The path of least resistance remains biased to the downside.

WTI Crude Oil Daily Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

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