China economic woes threaten WTI
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
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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.