China’s actions to promote economic growth helped crude oil prices rebound; a weaker dollar also supported WTI crude oil bulls, but how long can this last? WTI oil prices broke out of the falling wedge, bringing the resistance area around $80 into consideration.
WTI crude oil quickly found support on Thursday after the EIA report showed a sharp drop in crude oil inventories. The rise in oil prices may be due to China’s reaffirmation that it will stimulate economic growth in 2023. This move has boosted the demand side of crude oil, making oil prices expected to rise to higher levels. As the world’s largest crude oil consumer and importer, China’s economic conditions will naturally affect the overall trend of crude oil prices (that is, there is a positive correlation between the two). While the outbreak in China remains a constraint, if the impact of the virus is managed to be contained successfully, the market can indeed maintain a high level of risk appetite, which will give crude oil some support amidst global recession fears.
From a U.S. perspective, the U.S. dollar has eased, exacerbating China’s influence on the oil market. However, the quarterly rate of U.S. GDP in the third quarter was positive, making the U.S. quarterly GDP expand for the first time in 2022.
Chart source: DailyFX Economic Calendar
Brent crude oil LCOc1 daily chart
Chart source: IG, drawn by Warren Venketas
The daily price trend of WTI crude oil has maintained its upward trend after breaking through the falling wedge (black) pattern yesterday, and it seems that it is about to test the psychological resistance of 80 US dollars / barrel. The relative strength indicator RSI recently broke above the 50 mark, suggesting a bullish outlook for oil prices going forward. We will see whether oil prices choose the short-term directionality, i.e. whether this upward momentum continues.
IG Client Sentiment: Bullish
IGCS client sentiment data shows that 64% of retail investors are currently net long as of this writing. The customer sentiment index is generally considered a contrarian indicator, and given recent changes in long and short positioning, we conclude that oil prices are bullish in the short term. (Written by Warren Venketas and translated by Ashley)
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