Recently, under the influence of demand concerns, oil prices have fallen and corrected; although the short-term face is negative, the author still maintains a bullish outlook for crude oil in the medium term; if the important support of the $100 mark is maintained, it is expected that the buying enthusiasm will increase.
Oil prices tumble but remain bullish in the medium term for two reasons
Crude oil faced a bad start to the week and suffered its biggest one-day drop since the end of March, falling more than 7% during the session, mainly due to concerns about crude oil demand caused by China’s epidemic blockade and rising expectations of an imminent global recession. Impact. On Tuesday, the sell-off of crude oil in early trading was initially eased, but the enthusiasm for the sell-off picked up again in midday trading. WTI crude oil futures fell by more than 2.5% at one point, touching the $100/barrel mark. With so much uncertainty still lingering, traders are reluctant to re-establish long positions. Related recommendation: International oil prices: another wave of plummeting!Crude oil traders focus on this key inflection point
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Despite the recent weakness and volatility, the global supply and demand imbalance continues, and I remain bullish on crude oil in the medium term. While the current development of COVID-19 and China-related lockdowns could bring short-term bearishness and volatility in the market, conditions should improve in the coming weeks once restrictions are lifted.
Judging from the downward trend of newly diagnosed patients with new coronavirus in Shanghai and community transmission cases, if the historical pattern continues, the author expects that the policy of in-situ isolation at the end of the month or at the latest in early June will be relaxed. If so, oil imports are expected to pick up and support prices ahead of a summer when demand is high.
There’s another potential driver: the EU’s plan to ban Russian oil imports. The embargo is still being negotiated due to objections from several member states such as Hungary and Bulgaria. However, both countries have expressed their willingness to compromise if they have immunity. In any case, the EU is expected to agree on new sanctions in late May. Details are yet to be hammered out, but once fully implemented within six months, the gradual ban on EU imports of 3.5 million bpd of refined oil from Russia will exacerbate the gap in the crude market by the end of the year.
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Technical Analysis of WTI Crude Oil Trend
On the technical front, WTI crude is trading orthogonally above trendline support. If the bulls regain control and push for a meaningful rally, initial resistance is around $105.00, the 50-day simple moving average (SMA) and the $108 line. For further gains, I will focus on the 50% Fibonacci retracement level of the March/April decline near $111.55. Conversely, if oil extends its recent pullback and falls below the $100 mark, this could set the stage for a further decline towards $95.35, $93 and April lows.
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(Diego Colman, translated by Lisa)
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