February 8, 2023

USOIL Rebounds as China Eases COVID Restrictions

USOIL, DAILY

2023 is likely to be a year of change, as the economy emerges from one of the most difficult periods of the 21st century. In 2022, interest rates were soaring globally, Inflation soared, there was chaos in the distribution of goods and services and war in eastern Europe. Perhaps this year, too, could be an inflection point in crude oil prices as China reopens and supplies increase gradually. The oil market is stuck in a situation where demand is increasing at an unprecedented rate, while supply constraints remain.

China increased its crude oil import quota earlier this month, a sign the world’s biggest crude importer is preparing to meet higher demand. As of last week, China had issued a combined quota of 132 million metric tonnes (MMT) for crude oil imports in 2023, well above the 109 MMT quota at the same time last year.

According to an EIA assessment last week, oil demand will peak during 2023. The report noted increasing demand from China, as usual. European Union steps aimed at imposing new restrictions on imports of Russian oil will also boost oil prices. This embargo was imposed after the cap on the price of Russian oil was set.

What may limit the rise in oil prices is the recovering production of Nigeria and Venezuela. Besides that, Chevron has started pumping oil from the country, while Iran is also experiencing an increase in oil shipments as the country is targeting around 1.4 million barrels per day.

The report on Tuesday from AlphaBBL was bearish for crude oil prices as it projected that crude oil inventories at Cushing, the delivery point for WTI futures, would increase by +4.8 million bbl in the week ending January 20. If confirmed on Wednesday, it would be the biggest weekly increase in Cushing crude supplies since April 2020.

Meanwhile, Analysts at JP Morgan predict that oil will remain above $90. Goldman Sachs analysts believe that oil prices will remain above $90 in 2023 and even move to $100 and UBS analysts argue that oil will be above natural gas and thermal coal.

USOil oil prices on Tuesday posted modest declines as the market remained unsure about the economic and energy demand outlook. Crude oil prices were little changed from Tuesday afternoon closing levels, after the API reported that US crude oil supplies rose +3.38 million bbl last week. The consensus is for Wednesday’s weekly EIA crude oil inventories to rise by +1.5 million bbl.

Technical Review

USOil today has been trading around $80.00. The previous day, we saw an evening star candle pattern forming in the resistance zone and gains are likely to be capped by the 200 day EMA around $85.00. Current bias remains neutral with a chance that a break of the resistance at $82.63 will extend the rebound at $70.22 to a higher level. The price is currently in a bearish Kumo which is starting to look thin, with the RSI hovering above the 50 level and AO on the buy side.

On the downside, a break of $78.43 will break the bullish outlook and the price could consolidate again with the possibility of testing the ascending trendline to build new strength. Support is seen at $72.59 and a low of $70.72 will defend against future falls.

Ady Phangestu

Market Analyst – HF Educational Office – Indonesia

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