Oil hovers around 2023 highs ahead of a busy week

Oil holds gains as China reopening & easing Fed bets boost the demand outlook

Oil prices are hovering around the highest level so far this year, boosted find improving in-demand outlook as China eases Covid restrictions and hopes that the Federal Reserve could slow the pace of rate hikes going forward.

Both Brent and WTI booked gains of over 8% last week, which marked the largest weekly jump since October. The push higher came after China reopened its borders after three years marking the end of the zero COVID policy. The reopening comes ahead of the Chinese Lunar New Year, which is expected to see travel demand surge.

Still, this relates to the oil demand oil outlook, which has yet to be realised. The increase in demand will take time, particularly as Covid cases is China remain elevated, which is limiting gains on Monday. Meanwhile, acting as a drag on the energy complex more broadly are falling gas prices. News that China is diverting cargoes of liquified natural gas to Europe amid high storage levels suggests that demand could be slow in picking up.

Meanwhile, growing expectations that the Federal Reserve could slow the pace of rate hikes from the February meeting are also keeping oil prices supported. A slower pace of rate hikes means that the Fed might be able to engineer a soft landing for the US economy, which would also help the demand outlook for oil.

Trading volumes could be light today, owing to Martin Luther King Day in the US.

However, looking out across the week, there is plenty of data that could drive oil prices, including China’s GDP data, OPEC’s and the International Energy Agency’s monthly oil report, which provides insight into the global supply and demand outlook, as well as the usual weekly oil inventory reports from the API and EIA.

Where next for oil prices?

Oil trades in a symmetrical triangle formation, with the price currently being capped by the falling trendline resistance. The longer lower wick on today’s candle, the price holding above the 50 sma combined with the RSI sitting over 50 but below 70, suggests that there could be more upside.

A break above the falling trendline resistance at 81.00 is needed to open the door to 81.50, the 2023 high. A rise above here could create a higher high and bring 83.45 the December high into focus, ahead of the 100 sma at 86.25.

On the downside, a break below the 50 sma at 79.00, could expose the rising trendline support at 74.11. A break out below the triangle brings 72.15, the 2023 low into focus.

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.