Crude Oil Market Update

Mid-term trend has changed to a downward one
WTI Crude Oil quotes are trading around 103.66 amid the publication of data on a drop in production in China to the lowest value since February 2020 after another outbreak of coronavirus infection in the country (the April purchasing managers' index (PMI) was fixed at 47.4 points). If a lockdown or other strict quarantine restrictions are introduced in Beijing, which will become a catalyst for stopping the activities of the largest production facilities, then the demand for oil will be significantly adjusted, pushing energy prices to bearish dynamics. At the moment, the activity of oil traders remains reduced, as markets in Japan, India and Southeast Asian countries are closed at the beginning of the week due to the celebration of Labor Day.

Investors are waiting for the publication of the sixth sanctions package against the Russian economy, which, among other things, will contain steps to cancel energy supplies. Representatives of the eurozone countries intend to completely get rid of oil dependence by the end of the year, and until that time they will introduce gradual restrictions on imports. It is worth noting the unity of positions on the issue: Germany stated that it was ready to support an immediate EU embargo on the import of Russian "black gold", and the authorities of Hungary, Austria and Slovakia withdrew their veto on the oil embargo after intensive negotiations, which will now allow the procedure to be carried out in a shorter time. Earlier, the Energy Ministers of the region also rejected Russia's demand to pay for the supply of "blue fuel" in rubles.

The long-term trend, however, remains upward. Now the price is approaching the upper limit of the 108.75 corridor and, if this level is broken out, the next target of quotations will be the 117.50 mark. If the resistance of 108.75 is held by the bidders, then the asset will decline to the level of 95.



The mid-term trend changed to a downward one last week after the breakdown of the target zone 100.70?99.83 and now the reference point for the "bears" is zone 2 91.95-91.08. Also last week, the price of WTI Crude Oil reached the key trend resistance of 105.09?104.22. While this area is being held, it is worth considering short positions on the instrument.

At the moment, market participants are trying to break through the key resistance of 105.09?104.22. If successful, the trend will change to an upward one, and the target zone (113.84?112.97) will become the target for purchases.

Resistance levels: 108.75, 117.5 | Support levels: 95, 85

On the daily chart, an ascending wave C is developing, in which the first wave 1 of (1) of C was formed. At the moment, the downward correction continues to develop as the second wave 2 of (1) of C, in which the lower level wave a of 2 has formed and the wave b of 2 is developing.

If the assumption is correct, the price will fall to the levels of 77.08 - 62.5. The level of 139.45 is critical and stop-loss for this scenario.

Brent Crude Oil prices are consolidating near 104.00, correcting after an active decline yesterday. At the beginning of the current trading week, quotes lost sharply in value in response to reports that several EU countries are still blocking the introduction of a full-fledged oil embargo on supplies from Russia.

Last Sunday, the leaders of the G7 countries held talks via videoconference, within which the decision to phase out energy resources and ban the import of "black gold" from Russia was supported. Against this background, the participating countries pledged to cooperate on the issue of ensuring the stability of supplies, finding suppliers, and reducing fuel dependence. Meanwhile, negotiations in the EU concerning new sanctions under the sixth package of economic restrictions on the supply of Russian oil and petroleum products ended unsuccessfully. The representatives of Hungary voted against them, as the country's dependence on supplies from the Russian Federation is about 60%, and this blocking does not yet allow the introduction of a pan-European embargo. The next round of negotiations can be started today, but the head of the European Commission, Ursula von der Leyen, said that progress in discussing the issue with the country's leader Viktor Orban is noticeable.

Meanwhile, Saudi Arabia adjusted Arab Light crude prices to 4.40 dollars per barrel for June Asian deliveries for the first time in four months. The indicator dropped significantly compared to the May value of 9.35 dollars. The decline is due to the current uncertainty in the oil market and, in particular, a possible ban on the supply of Russian "black gold" due to the escalation of the military conflict in Ukraine and the strengthening of quarantine restrictions in China. The country's authorities, adhering to the policy of "zero tolerance" regarding the spread of COVID-19, introduced quarantine in Shanghai and Beijing, which led to a noticeable decrease in demand in the oil market.



On Tuesday, traders will focus on the publication of the American Petroleum Institute (API) on stocks in the US for the week of May 6. The previous report reflected a sharp decline of 3.479M barrels.

On the daily chart, Bollinger bands show predominantly flat dynamics: the price range practically does not change, remaining quite spacious for the current level of activity in the market. MACD falls below the signal line, keeping a strong sell signal, and prepares to consolidate below the zero line. Stochastic shows a more active decline, rapidly approaching its lows and indicating that the instrument may become oversold in the ultra-short term.

Resistance levels: 106, 109, 112, 115.5 | Support levels: 102.57, 100, 96.5, 93.34

During the Asian session, Brent Crude Oil prices are moderately declining, retreating from local highs of May 9 at 111.5 and testing 108.5.

The positive dynamics at the end of last week were due to the announcement of new restrictions on the import of Russian oil by the EU. It tries to agree on the sixth package of sanctions against the Russian economy, including a ban on oil supplies, which so far does not find unanimous support among all states since, according to Bloomberg, the heads of some of them have proposed to postpone the embargo. Although specific information was not disclosed, market participants consider a possible refusal as a sign of EU weakness. However, the European Commission was earlier ready to provide financial compensation to countries most dependent on Russian supplies, such as Hungary and Slovakia. Prime Minister of Hungary Viktor Orban said that any changes regarding oil transportation should be discussed at EU leaders, while he announced his readiness to support a pan-European solution if pipelines that supply Russian oil are excluded from the sanctions package. Certain steps are being taken toward reducing Europe's energy dependence on Russia, and agreeing on the terms of a full or partial oil embargo is only a matter of time. Also, unilateral sanctions by the Russian government should not be ruled out.

A report from the International Energy Agency published last week had a certain impact on the market dynamics. It says that rising oil production in the Middle East and the United States will positively impact supply dynamics in the market. Also, given the declining demand for hydrocarbons, it is likely that soon it will be possible to avoid a situation of acute shortage in the market.



On the daily chart, Bollinger bands are growing slightly: the price range is practically unchanged, remaining quite spacious for the current level of activity in the market. The MACD indicator grows, keeping a relatively strong buy signal (the histogram is above the signal line). Stochastic shows similar dynamics. However, it is quickly approaching its highs, which indicates that the instrument may become overbought in the ultra-short term.

Resistance levels: 109, 112, 115.50, 118.32 | Support levels: 106, 102.57, 100, 96.5

On the daily chart, the upward wave C develops, within which the first wave 1 of (1) of C formed. Now, a downward correction is forming as the second wave 2 of (1) of C, within which the wave of the lower level a of 2 has formed, and the wave b of 2 has ended as a triangle.

If the assumption is correct, the price will fall to the levels of 77.08 - 62.5. In this scenario, critical stop loss level is 115.62.

During the Asian session, Brent Crude Oil prices slightly decline, consolidating near 110 dollars per barrel. Yesterday, the quotes failed to record steady growth, despite the general correction of the US currency.

Investors fear that the protracted military conflict in Ukraine and the widespread decline in business activity will lead to a noticeable reduction in demand for "black gold." Nevertheless, there are also favorable factors on the market, for example, the upcoming summer season in the US, when traditionally, the demand among the population for gasoline and other petroleum products is increasing. Skeptics, however, point to a record jump in fuel prices, suggesting a decline compared to the period before the start of the COVID-19 pandemic.

On Tuesday, investors are focused on a block of macroeconomic PMI statistics from Europe and the US. Analysts' forecasts are very negative and suggest a general decline in indices. Also, during the day, a report from the American Petroleum Institute (API) on stocks in the US for the week of May 20 will be released. The previous report showed a decline of 2.445M barrels.

The head of the International Energy Agency (IEA), Fatih Birol, speaking at the World Economic Forum in Davos, which started on Sunday, said that global geopolitical tensions amid the escalation of the military conflict in Ukraine and the ensuing energy security crisis should not lead to even greater dependence states from fossil fuels. Currently, energy prices are too high, which is a negative factor for economic recovery around the world, especially in developing importing countries. The official also said that increased demand for "black gold" in China could pressure the global economy.



On the daily chart, Bollinger bands move flat: the price range remains practically unchanged, remaining quite spacious for the current level of activity in the market. The MACD indicator tries to reverse into a downward plane, keeping its previous buy signal (the histogram is above the signal line). Stochastic remains relatively strong growth. However, it is close to its highs, indicating that the instrument may become overbought in the ultra-short term.

Resistance levels: 112, 114.09, 115.5, 118.32 | Support levels: 109, 106, 102.57, 100

Brent Crude Oil prices show moderate growth, developing a strong "bullish" momentum formed last week and updating local highs from March 24. At the moment, the instrument is testing the level of 118.9.

Representatives of the EU countries, after lengthy negotiations, agreed on the sixth package of sanctions, which, among other things, includes a partial embargo on the supply of Russian oil, and also prohibits operations related to insurance of the delivery of energy from the Russian Federation to third countries. Earlier Hungarian officials opposed a complete ban on energy imports, comparing it with dropping a nuclear bomb on their economy, and Prime Minister Viktor Orban said that he would support anti-Russian sanctions only after providing guarantees on alternative fuel supplies. In the end, EU leaders still managed to reach an agreement on a partial ban that would not affect Hungary. The restrictions will affect the purchase of "black gold" supplied by sea, but will allow a number of countries to use the existing infrastructure, in particular, the Druzhba oil pipeline, through which deliveries to Germany and Hungary are possible.

The rise in prices for oil and oil products is also facilitated by the beginning of the automobile season in the US, where record prices for gasoline are fixed. The decision of the Chinese authorities also has a positive effect on the quotes: from June 1, the work of enterprises in Shanghai is resumed, and a number of restrictions on the operation of public transport and retail outlets are lifted in Beijing.



Bollinger Bands in D1 chart show moderate growth. The price range is expanding, but it fails to catch the development of "bullish" trend at the moment. MACD indicator is growing, while preserving a rather stable buy signal (located above the signal line). Stochastic has approached its highs, indicating the risks of overbought instrument in the ultra-short term.

Resistance levels: 120, 122.60, 125.85 | Support levels: 118, 115.5, 114.09, 112