BRENT & WTI CRUDE OIL ANALYSIS & TALKING POINTS

• Full attention on uptick in Chinese manufacturing.
• Marginal dollar weakness could change later today as US ISM manufacturing PMI comes into focus.
• Both Brent and WTI crude oil are heading towards the apex of the symmetrical triangle pattern. Breakout to follow?

BRENT/WTI CRUDE OIL FUNDAMENTAL BACKDROP

Crude oil prices have rallied in early trading this Wednesday after yesterday’s disappointing API weekly crude oil data that showed inventories markedly higher than the expected figure. The U.S. dollar is also on offer post US consumer confidence which missed estimates for February.

From a supply point of view, OPEC+ quotas for February missed the output allocation amount by 880000bpd. This is no surprise and has been happening throughout 2022 but what it does is reiterate the inability for OPEC+ members to reach target levels.

Earlier this morning key manufacturing PMI data (see economic calendar below) from China that beat forecasts on both the National Bureau of Statistics (NBS) and Caixin reports. Chinese manufacturing data has a historical positive correlation with crude oil in that when manufacturing performance improves, the demand for crude oil tends to rise and hence the price. Later today, the US will also release its ISM manufacturing PMI report. Although the expected figure is higher than the prior read, markets expect it to remain in contractionary territory (<50) while China stays above the 50 threshold in expansionary territory.

The US manufacturing statistic is not as pertinent as the service (non-manufacturing) number as the US economy is primarily services driven; however, any upside to the manufacturing release could have a positive impact on the USD.

Closing out the US session will see the EIA weekly crude oil stocks change data come into focus and could add some downside pressure should the data follow the same trend as yesterday’s API report.

U.S. ECONOMIC CALENDAR

Source: DailyFX economic calendar

TECHNICAL ANALYSIS

BRENT CRUDE OIL PRICE CHART (DAILY)

Chart prepared by Warren Venketas, IG

Daily Brent crude oil price action is contained within two key technical chart patterns including the bear flag (green) and the symmetrical triangle (black). The bear flag naturally lends itself to a bearish continuation which would coincide with a break below flag support, triangle support and the psychological $80/barrel support handle simultaneously. An invalidation of the symmetrical triangle would be seen should bulls breach wedge resistance but would still remain within the overall bear flag formation.

Key resistance levels:

• 85.00/Triangle resistance

Key support levels:

• 50-day SMA (yellow)
• 82.38
• 80.86
• 80.00/Triangle support/Flag support

WTI CRUDE OIL PRICE CHART (DAILY)

Chart prepared by Warren Venketas, IG

WTI oil is following a similar symmetrical triangle pattern (black) now testing the 50-day SMA (yellow) as oil prices push higher. The symmetrical triangle can breakout either way but often tends to follow the preceding tend which is to the downside in this case. The Relative Strength Index (RSI) reading suggests indecision at this point which makes it difficult to favor any short-term directional bias. More fundamental data is needed to provide more information either via the USD or oil supply and demand dynamics.

Key resistance levels:

• Triangle resistance
• 50-day SMA

Key support levels:

IG CLIENT SENTIMENT: BULLISH

IGCS shows retail traders are NET LONG on crude oil, with 73% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment however, due to recent changes in long and short positioning we arrive at a short-term upside disposition.

Contact and followWarrenon Twitter:@WVenketas