WTI struggles below $80.00 as China stimulus hopes fail to inspire Oil buyers amid economic woes
- WTI crude oil fades bounce off two-week low, sidelined of late.
- China’s Evergrande files for bankruptcy protection and bolsters debt woes amid economic fears about the Dragon Nation.
- Upbeat US data, risk-off mood propels yields and prods Oil buyers.
- Risk catalysts are the key, China, yields in the spotlight.
WTI crude oil lacks clear directions around $79.60 as bulls fail to extend the previous day’s corrective bounce off the lowest level in a fortnight amid the risk-off mood. It’s worth noting that the black gold posted the first daily gain in four the previous day amid hopes of China stimulus and a pullback in the US Dollar from the multi-day high. However, the latest fears about the world’s biggest energy customer, namely China, prod the WTI bulls.
The recent headlines from Beijing suggest that China’s second-large realtor, as well as the world's most heavily indebted property developer, Evergrande filed for protection from creditors in a US bankruptcy court on Thursday, per Reuters. The same escalate fears surrounding the world’s second-largest economy, as well as the global economic transition, as it battles with the slowing economic recovery and fuels concerns about the financial health of China’s biggest realtor, namely Country Garden. Amid these fears, top-tier US banks like JP Morgan and Barclays have recently cut China growth forecasts and challenged the Oil buyers indirectly.
Apart from the challenges to sentiment, firmer US data also weigh on the Oil price, via upbeat yields. That said, US Philadelphia Fed Manufacturing Survey marked the strongest print since April 2022, as well as the first positive outcome in a year, while rising to 12.0 for August from -13.5 prior and -10.0 expected. On the same line, the US Initial Jobless Claims also edged lower to 239K for the week ended on August 11 versus a revised up 250K prior and the market expectations of 240K. It should be noted that the four-week average of the Initial Jobless Claims and the weekly figures of the Continuing Claims for the period ended on August 04 edged higher. Earlier in the week, the US Industrial Production and Retail Sales for July marked surprising growth but the housing numbers were mixed.
It should be noted that the latest Fed Minutes showed that most policymakers preferred supporting the battle again the ‘sticky’ inflation, despite being divided on the imminent rate hike, which in turn challenges the market’s previous policy pivot concerns about the US central bank and favors the Greenback.
Alternatively, the People’s Bank of China (PBOC) released its second-quarter monetary policy report and said it “will resolutely prevent over-adjustment risks of Yuan exchange rate.” Before that, the PBoC and Chinese officials indirectly pledged more stimulus to defend the economy from slipping back into the jaws of recession.
Against this backdrop, Wall Street again closed in the red and the US 10-year Treasury bond yields march toward the levels marked in 2007. It should be noted that such high levels of yields previously triggered fears of global recession and drowned the riskier assets like equities and commodities previously.
Looking forward, a light calendar may push the WTI crude oil traders to watch for more risk catalysts for clear directions.
Technical analysis
WTI’s failure to provide a daily closing beyond the 21-day Exponential Moving Average (EMA) level of around $79.90, not to forget its inability to cross the $80.00 threshold, despite bouncing off a three-week-old rising support of around $78.80, keeps Oil sellers hopeful.