Oil dropped as light summer trading volumes exacerbated pressure from technical resistance levels.
(Bloomberg) — Oil dropped as light summer trading volumes exacerbated pressure from technical resistance levels.
West Texas Intermediate settled below $73 a barrel, putting a lid on last week’s supply-driven rally. The commodity briefly rose above its 100-day moving average on Friday, but the key level has since provided resistance to further gains. Meanwhile, brokers noted that trading flows remain thin, as is typical in the summer, which has kept price moves choppy.
With the exception of commodity trading advisers focusing on crude, oil trading has remained “extremely quiet” resulting in a market that’s “defenseless to the flows seen on a daily basis and keeping volatility quite high despite a lack of interest,” said Scott Shelton, an energy specialist at ICAP.
Adding to bearish sentiment was Chinese data revealing its economy is on the brink of deflation, while miner Rio Tinto Group said it sees a host of near-term economic challenges in the nation. Treasury Secretary Janet Yellen said the risk of a US recession is “not completely off the table,” adding an element of caution to the market.
Oil has been rangebound since late April, in part as China’s lackluster economic recovery and aggressive monetary tightening by central banks counter near-term tightness. A solid US employment report is keeping the Federal Reserve on track to boost interest rates this month, maintaining headwinds for crude prices. The International Energy Agency and OPEC will provide snapshots of the market when they release monthly reports later this week.
The outlook remains mixed as the market flashes signs of strength and speculators cut their bearish bets on the global benchmark and West Texas Intermediate crude. Last week, Brent rose 4.8% following a pledge by Saudi Arabia and Russia to reduce supply.
Meanwhile, the US announced on Friday that it’s purchasing 6 million more barrels of crude for the Strategic Petroleum Reserve as the nation continues to refill its supply buffer. The purchases, scheduled for October and November, come as the reserve is at its lowest point in 40 years.
To get Bloomberg’s Energy Daily newsletter direct into your inbox, click here.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.