Further rise in oil markets has been capped by persistent COVID-19 lockdowns in China
Oil prices rose marginally on Wednesday, struggling for direction today. Brent crude is oscillating in a tight range around $111 a barrel while also staying above a slightly ascending 20-DMA, currently at $109.70 a barrel. On the weekly charts, oil futures retain a modest bearish bias, holding off this week’s highs registered above $114 a barrel.
Brent crude was slightly supported by the government report that showed that US crude stockpiles fell 1 million barrels last week, with gasoline inventories also contracting modestly. The prospect of an EU embargo on Russian oil adds to the dominating upbeat tone in the market as well. Yesterday, European Council Charles Michel said an agreement can be reached before May 30.
On the other hand, further rise in oil markets has been capped by persistent COVID-19 lockdowns in China, raising concerns about fuel demand in the world’s biggest oil importer. Oil traders also express worries about the outlook for global economy amid the ongoing Russia-Ukraine crisis and the elevated inflation that pushes global central banks towards policy tightening.
From the technical point of view, Brent needs to hold above the mentioned moving average in the near term in order to get back above the $114 handle, followed by this month’s high of $115.70. However, it looks like oil prices would remain confined to a more modest range amid a cautious tone in the global financial markets.
Risk sentiment has improved somehow in recent trading after a mixed tone in Asia, but the buying interest looks too modest to bet on more robust gains across riskier assets, including oil, due to growing speculations about a possible recession in the US and across the globe amid stubbornly high inflation, major supply chain disruptions and weakening consumer demand.
