CRUDE OIL OUTLOOK:
- Crude oil prices extend rally as upbeat US ISM, PMI data lifts demand outlook
- Supply shortage fears, tepid OPEC+ output rise have put prices at 7-year highs
- EIA inventory flow data and the ADP employment report are in focus from here
Crude oil prices rose for a fifth consecutive day, hitting the highest level in almost seven years. A broadly risk-on backdrop seemed to inspire this latest round of gains, with the WTI benchmark tracking intraday gains in the bellwether S&P 500 stock index.
Stronger-than-expected economic activity surveys seemed to inspire the chipper mood. September’s service-sector ISM gauge unexpectedly rose. The Markit Composite PMI index tracking nonfarm performance for the same period was revised higher relative to initial estimates (though it still declined from the prior month).
In broader terms, supply shortage fears have been driving crude oil upward in recent weeks. That narrative was reinforced when OPEC+ opted against upsizing output by more than the already-planned 400k barrels per day at a meeting Monday. A larger increase might have helped relieve some pressure.
Looking ahead, EIA weekly inventory flow data is eyed. It is expected to show that US stockpiles added 795.8k barrels last week. Leading API data published yesterday pointed to a somewhat larger 1-million-barrel rise. If that proves to foreshadow a larger build than anticipated in today’s release, crude oil prices may struggle.
ADP Employment data is also on the docket. It is seen showing a payrolls rise of 430k in September, foreshadowing improvement when official figures hit the tape on Friday. Today’s PMI survey offered a warning however, saying that labor shortages translated into “historically subdued” employment growth last month.
A downside surprise may work against energy demand expectations, pulling crude oil downward. Losses may be limited however if the miss is so dramatic as to raise hopes for a delay of Fed policy normalization. The central bank is widely expected to start winding back stimulus before the end of the year.
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices narrowly pierced resistance at 78.84, the 38.2% Fibonacci extension. The next topside barrier is approximated by the 50% level at 80.61, followed by the 61.8% threshold at 82.37. Initial support is anchored at 75.27, marked by former resistance dating back to July 2018. However, a daily close below 72.17 seems needed to neutralize upward pressure in earnest.
Crude oil price chart created using TradingView
CRUDE OIL TRADING RESOURCES
— Written by Ilya Spivak, Head Strategist, APAC for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter