Crude oil prices were rejected from early-November lows around $60.30 and rallied strongly in the daily charts. But Brent failed to clear the $62.80 local resistance and retreated partially afterwards. On Thursday, the prices have settled around the $62 as the futures struggle for direction, showing a limited bearish bias.

The recovery was fueled by a good EIA report which showed the US crude oil stockpiles increased just 1.4 million barrels last week versus +1.5 million expected. The official result came in much lower than the API estimate of a rise by nearly 6 million barrels. The report managed to calm down investors a bit, however the unsustainable ascent confirms that traders are still focused on the trade developments and continue to express a cautious tone, fearing a break up in negotiations.

In the latest developments, pointing to a potential escalation in the trade spat, a senior Chinese diplomat said that US actions severely damage bilateral relations and China resolutely opposes US passing the Hong Kong human rights bill. He also added that Beijing will never allow anyone to destroy Hong Kong’s prosperity and stability. Against this backdrop, a similar response from Trump may follow now, so the risk aversion could get more aggressive down the road.

If so, Brent won’t be able to preserve its gains and could get back below the $61 handle in the short term, after a break of the 100-DMA at $61.25 which serves as the intermediate support area. On the positive side, risky assets including oil could derive some support from the upcoming ECB meeting minutes due later today, as the central bank may deliver a fairly dovish tone and thus cap the downside pressure on high-yielding assets at this stage.

In general, bearish risks continue to prevail in the oil market, with Brent remains in the negative territory in the weekly charts. Only above the 200-DMA at $64.35, the technical outlook for Brent will improve substantially. For now, the risk of a break below the $60 psychological support persists.

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