Market analysis: WTI attempts to recover from Friday’s selloff

Crude prices suffered a strong selloff on Friday. US crude (WTI) dropped 2.70%, finishing the session below $80 per barrel. The momentum has been trying to reverse on Monday morning as markets react to the weekend news, but the moves have been muted so far. The biggest headline has been the removal of President Biden from the presidential race, with vice-president Kamala Harris expected to take his place.

The outcome of a potential Harris presidency is yet unknown although some speculations suggest a tougher stance on the oil industry than Biden. The full impact of the decision will become evident later on, but for now, the immediate reaction seems to be a little bit of relief as it removes a layer of uncertainty in markets as many had started to question whether Biden would be fit to run for another term.

Rate cut hopes continue to fuel the potential for a bullish reversal. Softer inflation and labour market conditions have increased the odds of a September rate cut, weighing on the dollar and US yields. Looser financing conditions are expected to allow the US economy to continue outperforming whilst keeping inflation under control, which helps expectations of stronger crude demand, but concerns about this leading to an economic slowdown have been limiting the moves higher.

Meanwhile, concerns about China’s economy persist, which puts downward pressure on oil prices as it is one of the biggest oil importers.

From a technical perspective, the short-term bias in WTI has started to turn bearish. The WTI has slipped below 50 for the first time since early June with a succession of lower highs limiting the upside to a descending trend line. The fact that the price has dropped below its key range of support/resistance (82.54-80.65) is also significant and will likely continue to limit the upside. Friday’s close below three of its key simple moving averages may also be a fresh trigger for sellers in the coming days.

For now, the momentum at the start of the week seems to be aimed higher but there is a lack of appetite for a reversal. So far the daily gains have been halted at the $80 mark, suggesting ample resistance up ahead even if buyers do start to appear. In the absence of a catalyst, we may see WTI lacking some direction this week as traders recover from the recent volatility in oil prices.

US crude (WTI) daily chart

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