Today's session is again marked by the dollar returning to growth after a brief correction, putting pressure on energy commodities. Brent and WTI crude oil prices are losing 0.5% and 0.6%, respectively. The initial rally due to the escalation of tensions in the Red Sea region has not been sustained. Moreover, even yesterday's precision attack by Israeli forces on Hamas leader Al-Arouri in Beirut did not bring an increase due to the geopolitical premium. The market appears to be concerned about a weaker demand landscape for oil. For now, investors do not expect the conflict in the Middle East to spill over, even despite the dispatch of an Iranian destroyer to the Red Sea. At 9:40 PM GMT today, traders will learn about oil inventories according to the API, but before that, macro data will be published, which may also affect the quotes.
Today, volatility in oil may increase around 3 PM GMT, when the market will learn the next readings of the ISM of the US industry and JOLTS, and both will shed more light, on the current momentum of the economy overseas. Weaker data from the U.S. economy could mean that the vision of a soft landing is slightly but slowly receding, justifying the recent sell-off in the oil market. Yesterday, OPEC+ policymakers announced a monitoring meeting planned for February, and while it was not specified what the meeting would be about, the market speculates that it could stem from the need for a faster response in the form of additional cuts, given the weaker momentum in economies and lower consumption. Also, macro data from China, globally the largest oil consumer, does not inspire optimism towards 2024. The latest official readings suggested the weakest factory activity in six months, lower indicators for imports, and services PMIs came in below expectations.
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Oil started 2024 with declines and failed to overcome important resistance in the form of the 200-session moving average, on the D1 interval (red line). Quotations are now retreating to the area between $70 and $75 per barrel, where historically we have seen numerous price reactions and where bullish activity may increase. However, it seems that from current levels, broader support could come from a surprising improvement in macro data, primarily from China's economy, or an unexpected negative market event that would put a question mark over crude supply, in the Middle East region. Otherwise, buying activity may turn out to be a correction in a downward trend. In the event of slowly weakening macro readings from the global economy, oil may continue to lose, and a drop below $70 could trigger a sizable liquidation.
Source: xStation5
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