Oil Holding At Support… For Now

Oil prices are seeing some relief today with crude futures trading a little higher off the week’s lows. Some shift in tone from the BOJ has seen JPY pulling back from recent highs which has helped improve risk appetite somewhat. Additionally, with USD still weak, crude is deriving some support through that channel despite growing US economic fears. Indeed, the deteriorating picture in the US has been a big driver behind the latest fall in crude prices. With recession risks growing, the demand outlook in the US has weakened, leading to lower commodities prices across the board, including oil.

Middle East Impact

Rising tensions in the Middle East are also curbing downside action in oil. Fears of a retaliatory attack following the killing of top Hezbollah and Hamas leaders in recent days have seen Libya announcing a reduction in activity at its largest oil field amidst security concerns. With fears that a wider conflict could emerge in coming weeks, further supply disruptions remain a key upside risk for crude which is likely to rally on any news of an escalation in violence.

EIA On Watch

Looking ahead today, the focus will be on the latest EIA data with a further drawdown of 1.6 million barrels expected today on the back of the prior week’s 3.4-million-barrel draw. If seen, this should help further stabilise oil prices near-term.

Technical Views

Crude

The sell off in crude has seen the market trading down to a test of the 72.61 level, which is holding as support for now. While this level remains intact, there is room for a recovery bounce, putting focus on 77.64 next. However, with momentum studies bearish, should we turn lower again 67.45 will be the next support to watch, with a test of the channel lows coming just ahead. In the Signal Centre today we have a buy limit set at 73.45, suggesting a preference to stay long above current support.