Crude oil update: prices retreat ahead of inventory reports as China virus cases stay high

WTI crude and Brent crude prices retreat in Tuesday’s Asia-Pacific trading; US inventory data in focus in the days ahead as China’s Covid woes linger and WTI crude oil’s technical posture is bearish below major moving averages.

Crude oil prices rose to start the week as a softer US dollar and supply concerns supported buying. However, West Texas Intermediate (WTI) and Brent crude prices are pulling back through Asia-pacific trading. A breakdown in negotiations between Tehran and Washington helped drive prices higher. Iran’s response to a proposal presented by the European Union disappointed Western leaders.

Iran wants an investigation by the International Atomic Energy Agency (IAEA) to be halted, but that is off the table for the US and EU. US Secretary of State Anthony Blinken on Monday said a near-term deal is “unlikely.”

That commentary saw WTI trim its losses by nearly a full percentage point. German Chancellor Olaf Scholz shared Mr. Blinken’s sentiment. Israel is said to have shared concerning intelligence that Iran is very close to having enough weapons-grade uranium for a bomb.

China’s Covid-19 lockdowns continue to weigh on oil’s demand outlook. This morning, the National Health Commission reported 1,048 new cases for September 12. Beijing is unlikely to ease its stance on containing the virus before October. That is when President Xi Jinping is expected to secure a third term in office. However, speculation that a gradual easing of restrictions would take place in the months following the National People’s Congress (NPC).

For now, traders have their focus on inventory data due out over the next couple of days. On Tuesday, the American Petroleum Institute (API) will report crude oil stocks data for the week ending September 09. The Energy Information Administration’s data, which typically has more influence on markets, is due out the day after. Analysts expect the EIA data to show a 200k barrel reduction in crude oil stocks and a 633k barrel build in distillate stocks.

WTI crude oil technical outlook

Prices failed to clear the 61.8% Fibonacci retracement from the December 2021/March 2022 move after an intraday climb stalled just short of the 20-day Simple Moving Average (SMA). WTI’s technical outlook is skewed to the bearish side, as prices remain below their major moving averages and the RSI and MACD oscillators sputter out below their midpoints.

If Monday’s strength returns and prices clear the 20-day SMA (green line), the 90 psychological level poses a potential challenge before the 50-day SMA (blue line). A move lower would resume the broader downtrend. And a break below the September low at 81.21 is the worst-case scenario, which would bring prices to levels not traded since early January.

WTI crude oil daily chart

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