WTI stabilizing in the $53 handle but remains on thin ice as global outlook deteriorates
- Bulls hold in at the $53 handle but remain on thin ice as global outlook deteriorates.
- Technically, the price is below the 23.6% Fibo of the April highs to recent swing lows.
The price of oil is struggling in an environment where trade war risks are dampening the prospects of traction with respect to the global growth outlook. Those warnings at the International Monetary Fund (IMF) in July are coming home to roost for those that did not take heed of them.
The IMF cut its growth forecasts for the global economy for this year and next predicting growth of 3.2% in 2019, down from its April forecast of 3.3% which was the prior lowest level since the financial crisis. Growth next year is set to pick up to 3.5% next year, although that is below its earlier forecast of 3.6%.
It will be of no surprise that these are cut again in the near future due to significant downside risks to the world economy including trade tensions, pockets of political instability, mounting debt levels and increasing inequality. Indeed, momentum signals are firming to the downside in the energy sector, leading to commodity trading advisors, (CTAs), to ramp up their shorts in Brent and the US benchmark, West Texas Intermediate crude.
West Texas Intermediate crude was ending on Wall Street around $53.67, -2.38% having travelled between a range of $53.48 and $55.41, unable to shake off the trade war blues. The September delivery was ending down $1.06, or 1.9%, to $53.63 a barrel on the New York Mercantile Exchange which was the lowest finish since June 17. The price of crude has been under immense pressure since Trump announced fresh tariffs on Chinese imports leading to the U.S. oil benchmark suffering its biggest one-day fall in more than four years.
The supply-side narrative continues to remain supportive
In other news, there were reports that Chinese tankers are carrying Iranian fuel that saw concerns the nation would increasingly skirt US sanctions on Iran increase, thereby substituting out demand from the global market, as the trade war conflict comes to a boil and as fears grew that Beijing could also retaliate by imposing a tariff on US crude imports. However, the supply-side narrative continues to remain supportive, analysts at TD Securities argued:
"The supply-side narrative continues to remain supportive, which should provide a floor for markets as OPEC production continues to undershoot. Indeed, potentially lost in the barrage of trade related news over the weekend, Iran has seized another oil tanker in the Gulf, highlighting that tensions still remain high."
WTI levels
Technically, the price is below the 23.6% Fibo of the April highs to recent swing lows and is smothered below the 50 and 200 daily moving averages. Bears can target the 50 handle on an escalation of the trade wars. Below 52.00, the 51.30s come as a key downside target from here. On the upside, 56.80 guards a run to 60.50.