After a modest recovery seen last week, crude oil prices extended the pullback from multi-year lows on Monday. Brent crude has exceeded the $27 handle but lacked the upside momentum to stage a more robust ascent ass risk sentiment deteriorated.
Most global stocks were on the defensive at the start of the week amid rising tensions between the United States and China over the coronavirus crisis. Risky assets came under the downside pressure after Trump threatened to impose new tariffs on Chinese goods and even terminate the trade deal with Beijing for its handling of the coronavirus outbreak.
Still, crude oil prices managed to extend the rebound even as high-yielding assets came under pressure while dollar demand picked up. The market was partially supported by the fact that the new OPEC+ deal came into force in May and some countries are gradually removing lockdown restrictions. Also, traders cheered the news that US oil companies announced voluntary production cuts amid weak energy demand.
In a wider picture, however, sentiment in the oil market remains bearish as the outlook for demand is worsening while the coronavirus pandemic continues to hurt the global economy, with fresh dismal economic news adding to the negative mood.
It is possible that the greenback will correct lower after the recent local rally. If so, Brent may see more robust gains but the upside momentum will remain limited as long as demand-related concerns persist in the market. Also, there is another risk factor for oil prices now as tensions between Washington and Beijing add to worries in the global financial markets.
From the technical point of view, Brent crude needs to overcome the $28 local resistance in order to challenge the $30 psychological level. The futures have been trading below this barrier since mid-April and may need some strong catalysts to make a decisive break above it. On the downside, the immediate support now arrives at $27 and $25.85.