Two fundamentals causing crude to a bearish sentiment
The price of oil dropped as traders decreased their appetite for risk due to worries about a global economic slowdown and the escalating Covid-19 outbreak in China.
Crude prices dropped more than 10% as It’s the first time since early April to settle under $95 a barrel on Tuesday and traded to Wednesday’s low of $93.50 as rising virus cases in China and looming US inflation data are stoking concerns about demand.
According to rueter.com- China reported 424 new COVID-19 infections for July 11, of which 107 were symptomatic and 317 were asymptomatic, the National Health Commission said on Tuesday. As of Monday, mainland China had confirmed 226,811 cases with symptoms.
Wall Street Journal, earlier this week, Shanghai authorities reported its first local transmission of the Omicron subvariant BA.5, which had been imported. “The potential risk of community transmission remains very high,” Zhao Dandan, a Shanghai health official, said at a press conference Sunday, adding that two more rounds of mass testing in more than nine districts over three days will start Tuesday.
Crude has fallen since early June on escalating fears the US may be pushed into a recession as central banks hike rates to combat inflation. The annual inflation rate for the United States is 8.6% for the 12 months ended May 2022, the largest annual increase since December 1981 and after rising 8.3% previously, according to U.S. Labor Department data published June 10.
Since inflation is worsening, Fed officials last month agreed they would have to raise interest rates faster and to levels that would slow economic growth. Following the Fed’s rate increase last month, the benchmark federal-funds rate is now between 1.5% and 1.75%. Most officials at the meeting expect the rate to rise to between 3.5% and 4.5% next year, with at least 3% expected this year.
By technical analysis, the price of crude found support in the daily time frame (D1) on the 200days simple moving average at $93.50 and rally trading around $95 a barrel on this Wednesday and by following the two fundamental above, oil investor may be waiting to sell when the price to rally to level $97.5 by putting the protective stop at $105 and taking profit at $89.
Analyzed by: Mr. Nhim Kosol Business Manager of PP Link Securities
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