Oil forecast: China virus curbs weigh on WTI but chart shows chance for breakout

• Crude oil

Crude oil prices are under pressure as China increases lockdown measures as Covid spreads; a surprise build in US stockpiles and the restarting of a major US refinery pose headwinds and WTI prices extend drop.

Crude oil prices are little changed in Asia-Pacific trading after falling more than three percent throughout European and US trading hours. The commodity’s demand outlook is suffering from an increase in Covid cases across China, which has forced Chinese officials to ramp up containment measures.

Those virus curbs reduce economic output, thus leading to lower oil consumption.

• China

The city of Guangzhou, a manufacturing hub in Southern China, increased restrictions on Wednesday as transmission surged despite earlier measures to stop the spread.

More than half of the city’s eleven districts are under some form of lockdown, and may increase over the coming days. The city reported over 2,500 cases on Wednesday. Chongqing, a city of around 30 million, moved to tighten measures on Thursday morning in two districts.

• Inventory

A surprise crude oil inventory build in the United States added to the selling. The US Energy Information Administration (EIA) reported a 3.9 million barrel build for the week ending November 4. That was well above the 1.36 million barrel consensus forecast.

Gasoline and distillate fuel inventories fell, although not as much as expected. And the production of those fuels increased to average 9.8 million barrels per day for gasoline and 5.2 million barrels per day for distillate fuel.

• Refinery capacity

The WTI crude oil prompt spread—the difference between the current and next month’s contract prices—fell to 0.80 on Thursday, down from 1.23 at the start of November. A falling prompt spread is generally seen as a bearish sign for prices.

On Wednesday, the Port Arthur, Texas, refinery started to bring its distillation unit back online after a maintenance period, according to a Reuters report. The refinery, operated by Motiva Enterprises, is the largest in the United States, capable of producing over 600k barrels of fuel per day.

WTI crude oil technical outlook

Prices fell earlier this week from the 100-day Simple Moving Average (SMA) to trade around the 86 handle. A series of higher lows since late September has carved out an Ascending Triangle pattern, with the two reaction highs from early October and this week serving as resistance.

If prices rebound and pierce above the 100-day SMA, a breakout is on the cards.

WTI crude oil daily chart

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