WTI fades recovery below $107.00 as Iran cuts oil prices, recession fears loom

• WTI struggles to extend the previous week’s recovery, grinds higher of late.
• Iran announces price cuts to compete Russia, US PMIs propelled economic fears.
• US holiday to limit intraday moves but Fed Minutes, US NFP will be crucial to watch for clear directions.

WTI crude oil prices fail to extend Friday’s run-up, taking rounds to $106.75-80 during Monday’s Asian session, as traders seek fresh directions amid multiple challenges for bulls.

While fears of economic slowdown and the recent US dollar strength could be termed as the key hurdles for the oil buyers, the recent news from Bloomberg, conveying Iran’s readiness for price cuts, also weighs on the black gold. “Iran is being forced to discount its already cheap crude even more as a top ally gains a bigger foothold in the key Chinese market,” the news adds.

Bloomberg also mentioned that Iranian oil has been priced at nearly $10 a barrel below Brent futures to put it on par with Urals cargoes that are scheduled to arrive in China during August, according to traders. That compares with a discount of about $4 to $5 prior to the invasion. Iran’s Light and Heavy grades are most comparable to the Urals.

Elsewhere, US ISM Manufacturing PMI for June slumped to the lowest levels in two years, to 53.0 versus 54.9 expected and 56.1 prior. The details suggested the Employment Index declined to 47.3 from 49.6 and New Orders Index fell to 49.2 from 55.1. Finally, Prices Paid Index dropped to 78.5 from 82.2, versus market forecasts of 81.0. It should be noted that the final readings of the S&P Global Manufacturing PMI for June dropped to the lowest level since July 2020, to 52.7 versus the flash estimate of 52.4 and 57 in May.

To portray the mood, the US 10-year Treasury yields marked the biggest weekly fall since February but the US Dollar Index (DXY) didn’t lose its charm.

Given the fears of higher supplies and impending concerns over the recession, the black gold prices are likely to ease. However, the US dollar moves will be important to observe for clear directions, which in turn highlight this week’s Fed Minutes and US Nonfarm Payrolls (NFP). Additionally, Russia’s claim of having complete control over Lysychansk also needs to be confirmed for fresh impulse.

Technical analysis

A three-week-old ascending support line, around $105.00, restricts the short-term WTI downtrend. Recovery moves, however, need validation from late June’s swing high of $112.72.