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Oil holds gains as China reopening & easing Fed bets boost the demand outlook

Oil prices are hovering around the highest level so far this year, boosted find improving in-demand outlook as China eases Covid restrictions and hopes that the Federal Reserve could slow the pace of rate hikes going forward.

Both Brent and WTI booked gains of over 8% last week, which marked the largest weekly jump since October. The push higher came after China reopened its borders after three years marking the end of the zero COVID policy. The reopening comes ahead of the Chinese Lunar New Year, which is expected to see travel demand surge.

Still, this relates to the oil demand oil outlook, which has yet to be realised. The increase in demand will take time, particularly as Covid cases is China remain elevated, which is limiting gains on Monday. Meanwhile, acting as a drag on the energy complex more broadly are falling gas prices. News that China is diverting cargoes of liquified natural gas to Europe amid high storage levels suggests that demand could be slow in picking up.

Meanwhile, growing expectations that the Federal Reserve could slow the pace of rate hikes from the February meeting are also keeping oil prices supported. A slower pace of rate hikes means that the Fed might be able to engineer a soft landing for the US economy, which would also help the demand outlook for oil.

Trading volumes could be light today, owing to Martin Luther King Day in the US.

However, looking out across the week, there is plenty of data that could drive oil prices, including China’s GDP data, OPEC’s and the International Energy Agency’s monthly oil report, which provides insight into the global supply and demand outlook, as well as the usual weekly oil inventory reports from the API and EIA.

Where next for oil prices?

Oil trades in a symmetrical triangle formation, with the price currently being capped by the falling trendline resistance. The longer lower wick on today’s candle, the price holding above the 50 sma combined with the RSI sitting over 50 but below 70, suggests that there could be more upside.

A break above the falling trendline resistance at 81.00 is needed to open the door to 81.50, the 2023 high. A rise above here could create a higher high and bring 83.45 the December high into focus, ahead of the 100 sma at 86.25.

On the downside, a break below the 50 sma at 79.00, could expose the rising trendline support at 74.11. A break out below the triangle brings 72.15, the 2023 low into focus.

(Click on image to enlarge)

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Oil holds gains as China reopening & easing Fed bets boost the demand outlook

Oil prices are hovering around the highest level so far this year, boosted find improving in-demand outlook as China eases Covid restrictions and hopes that the Federal Reserve could slow the pace of rate hikes going forward.

Both Brent and WTI booked gains of over 8% last week, which marked the largest weekly jump since October. The push higher came after China reopened its borders after three years marking the end of the zero COVID policy. The reopening comes ahead of the Chinese Lunar New Year, which is expected to see travel demand surge.

Still, this relates to the oil demand oil outlook, which has yet to be realised. The increase in demand will take time, particularly as Covid cases is China remain elevated, which is limiting gains on Monday. Meanwhile, acting as a drag on the energy complex more broadly are falling gas prices. News that China is diverting cargoes of liquified natural gas to Europe amid high storage levels suggests that demand could be slow in picking up.

Meanwhile, growing expectations that the Federal Reserve could slow the pace of rate hikes from the February meeting are also keeping oil prices supported. A slower pace of rate hikes means that the Fed might be able to engineer a soft landing for the US economy, which would also help the demand outlook for oil.

Trading volumes could be light today, owing to Martin Luther King Day in the US.

However, looking out across the week, there is plenty of data that could drive oil prices, including China’s GDP data, OPEC’s and the International Energy Agency’s monthly oil report, which provides insight into the global supply and demand outlook, as well as the usual weekly oil inventory reports from the API and EIA.

Where next for oil prices?

Oil trades in a symmetrical triangle formation, with the price currently being capped by the falling trendline resistance. The longer lower wick on today’s candle, the price holding above the 50 sma combined with the RSI sitting over 50 but below 70, suggests that there could be more upside.

A break above the falling trendline resistance at 81.00 is needed to open the door to 81.50, the 2023 high. A rise above here could create a higher high and bring 83.45 the December high into focus, ahead of the 100 sma at 86.25.

On the downside, a break below the 50 sma at 79.00, could expose the rising trendline support at 74.11. A break out below the triangle brings 72.15, the 2023 low into focus.

(Click on image to enlarge)

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