West Texas Intermediate (WTI) crude oil prices have been eerily calm given the turmoil over the last week. They’ve continued to maintain this progress despite changing economic indicators and different markets’ risk appetites throughout. As of the latest reports, WTI’s price remains under the influence of several resistance and support levels, which traders closely monitor. The oil-producing cartel, OPEC, and their allies including Russia had agreed to boost production by 411,000 barrels per day (bpd) just last month. This new development introduces an interesting dynamic into the market equation.
This price stability arrives against a backdrop of increasingly ominous signals from the US and international manufacturing sectors. Business and consumer confidence in both the United States and China has decreased. Other critical indicators such as ISM manufacturing PMI and China’s manufacturing PMI have fallen below the all-important 50 threshold. This unexpected contraction supports the warnings from across the industry about potentially depressed demand for oil in the longer term.
Price Resistance and Support Levels
WTI’s price is currently testing important horizontal resistance and support levels that technical traders use to help predict where price may go next. On the upside today, the key resistance levels are still set at 64.10 (R1), 68.40 (R2), and 72.20 (R3). In the opposite direction, the resistance levels are at 63.45 (R1), 65.40 (R2), and 67.10 (R3). These levels act as meaningful signaling points to traders and investors.
In the event that bearish trends take the day, analysts are cautioning that WTI may dip under the 59.85 (S1) support line. If it does, further drops may be in the pipeline. Should the bulls lose control, prices may fall to the next layer of support at 54.80 (S2). Despite positive long-term fundamentals, this technical analysis shows increased caution as traders and investors take stock of market conditions.
Given the above comments, if bullish sentiment prevails, then we may see WTI’s price overcoming the 64.10 (R1) resistance hurdle. Such a breakout would open the way for further gains, perhaps even hitting the 68.40 (R2) resistance zone. This bearish case would open up an opportunity for bulls to take charge of the market. The dance between these resistance and support levels is always important, especially as traders refocus their efforts depending on what’s going on.
Economic Indicators Impacting Demand
Recent economic data did not make things any brighter for oil demand. Here in the United States, the ISM manufacturing PMI has already fallen below 50, signaling a contraction in manufacturing activity. This sharp drop is an early indicator of weakening industrial oil consumption — ghostly etchings of public health lockdowns — that has traders spooked over industrial demand going forward.
To add more fuel to the fire, US factory orders’ growth has fallen into the red, adding credence to the softening condition of the nation’s manufacturing sector. This worrisome trend is showing up in falling activity levels that may have major impacts on oil consumption trends.
As of the writing of this post, China has joined in the fun too, with its May manufacturing PMI figures dipping below 50, indicating a contraction. China is currently one of the world’s largest consumers of oil. If its automotive manufacturing continues to slow, it would have a major effect on global oil demand. This interdependence of the two economies adds even further strain to WTI prices as traders weigh different scenarios for future demand.
Inventory Levels and Supply Dynamics
On that somewhat happier front, last night’s EIA data once again reflect robust US drawdowns in oil inventories. At least the EIA and API agree on this point. EIA just reported a huge 4.304 million barrel drop. At the same time, the API reported a drop of 3.3 million barrels. These figures might help ease some fears about oversupply and underpin WTI prices in the context of high-demand, low-supply economic fluctuations.
Baker Hughes on Friday reported an increase in active oil rigs in the US. Helping consumers adapt to this increase further complicates the challenge of restoring price stability. With three more rigs yet to be deployed across the country, this may result in production capacity ramping up just as demand signals start to soften.
Additionally, outside factors like Canadian wildfires could add additional pressure to supply. Additionally, recent wildfires in Eastern Washington raised concerns about potential production interruptions. This would further constrict supply lines and buoy WTI prices, even amidst a more broadly bearish market.