China eco­nomic woes threaten WTI

Financial Mirror (Cyprus) - - FRONT PAGE -

WTI oil plum­meted over 6% on Mon­day with prices edg­ing closer to $31 as tepid man­u­fac­tur­ing data from China, the world’s largest en­ergy con­sumer, re­newed fears that de­mand may be dwin­dling. Th­ese anx­i­eties added to the rapidly fad­ing ex­pec­ta­tions around OPEC co­op­er­at­ing with Rus­sia to curb pro­duc­tion, while on­go­ing con­cerns over the ex­ces­sive over­sup­ply of oil in the mar­kets con­tin­ued to haunt in­vestor at­trac­tion. Al­though there was some ini­tial op­ti­mism di­rected to­wards Rus­sia’s will­ing­ness to slash pro­duc­tion, Saudi Ara­bia re­mained de­fi­ant on the idea of any cuts, while Iran had al­ready pledged to pump up to 1.5 mln bar­rels a day in a mis­sion to re­claim its lost mar­ket share.

The vis­i­ble clash of in­ter­ests from var­i­ous car­tel mem­bers, com­bined with an ap­pre­ci­at­ing Dol­lar, has added to oil’s woes con­se­quently ob­struct­ing any op­por­tu­nity for a re­cov­ery in prices. WTI re­mains firmly bear­ish and this hor­ri­ble com­bi­na­tion of record high pro­duc­tions, a heav­ily sat­u­rated oil mar­ket and fears over slug­gish de­mand should en­cour­age sellers to at­tack oil prices to­wards $30.

From a tech­ni­cal stand­point, WTI oil is bear­ish and prices have re­spected the daily bear­ish chan­nel. Cur­rent can­dle­sticks are in the process of cross­ing below the daily 20 SMA while the MACD points to the down­side. A breach below $31 should in­vite an op­por­tu­nity for a fur­ther de­cline to­wards $30.

The vi­o­lent move­ments in the oil mar­kets and re­newed wave of risk aver­sion from the on­go­ing is­sues with China have soured risk ap­petite and this has con­se­quently left the stock mar­kets de­pressed. Al­though China stocks ex­pe­ri­enced a heavy sell­off on Mon­day as Asian eq­ui­ties de­clined, the losses in the Chi­nese mar­kets were rapidly clawed back early Tues­day with the Shang­hai Com­pos­ite In­dex trad­ing +2.17%. Euro­pean and Amer­i­can eq­ui­ties also re­ceived pun­ish­ment and closed neg­a­tive as risk aver­sion en­cour­aged in­vestors to scat­ter away from riskier as­sets. Al­though some short-term er­ratic move­ments may be ob­served in the stock mar­kets as ex­pec­ta­tions grow around cen­tral banks ex­pand­ing fur­ther stim­u­lus mea­sures, the lin­ger­ing fears over slow­ing global growth and down­side pres­sures from on­go­ing global con­cerns should en­cour­age fur­ther sell­offs in the fu­ture.

Euro bears failed to re­trieve in­spi­ra­tion on Mon­day de­spite Mario Draghi stat­ing that Eu­ro­zone in­fla­tion was weaker than ex­pected in the Euro­pean Par­lia­ment in Stras­bourg. This dovish state­ment should have re­in­forced the grow­ing ex­pec­ta­tions of fur­ther ECB stim­u­lus mea­sures in March, but in­vestors re­jected this rhetoric and the Euro ap­pre­ci­ated against the Dol­lar. In­fla­tion re­mains at wor­ry­ing lev­els in the Eu­ro­zone while fall­ing com­mod­ity prices have sab­o­taged the at­tempts for


the ECB to jump­start growth. Al­though the EURUSD bounced higher to­wards 1.090, the grow­ing ex­pec­ta­tions around the pos­si­bil­ity of fur­ther stim­u­lus mea­sures in March should keep prices pres­sured to the down­side. While the pair cur­rently trades in a wide range, a solid break­down below 1.080 should en­cour­age a fur­ther de­cline to­wards 1.070.

Mar­kets Re­port b

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