Crude Falls Back

Following a strong start to the week, oil prices have turned lower through the last few days with crude futures now down around 4% from the week’s highs. A combination of a stronger US Dollar and weak data out of China have hit sentiment into the back end of the week. Recent Fed commentary has continued to point towards delayed easing this year with policymakers sharing concern over the inflationary path. With USD likely to remain supported while this narrative holds, crude prices look vulnerable to further downside.

Weak China Data

The latest manufacturing data out of China this week was also disappointing for crude bulls. The Manufacturing PMI was seen dropping back into negative territory last month at 49.5 from 50.5 prior, below 50.4 expected. The data has seen traders pairing back their near-term demand expectations for China, fuelling an unwinding of long positions in crude.

Mixed EIA Data

Indeed, the crop in crude this week comes despite the EIA reporting a more than 4 million-barrel drawdown last week. This was more than double the 1.6-million-barrel draw forecast. Despite the headline drawdown however, fuel inventories were seen rising by 2 million barrels last week just ahead of summer driving season in the US, raising concerns over demand into the summer.  

US PCE Next

Looking ahead, the focus today will be on the latest US core PCE data. Given that it is the Fed’s preferred inflation gauge, the data will be used as a signal for near-term easing expectations and holds the potential to create strong volatility today if we see any surprise reading in either direction. Given the weakness in crude, any bullish USD response today will be firmly bearish for crude into next week while a surprise drop in the data should see USD lower, allowing crude to recover.

Technical Views

Crude

Following the initial breakout above the bear channel, price is now retesting the broken channel highs along with structural support at the 77.64. This is a key support area for the market and a break lower here will be firmly bearish, turning attention to 72.61 next. To the topside, 82.59 remains the key hurdle for bulls. 

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