WTI fails to surpass $79.00 amid uncertainty over China’s Covid situation

West Texas Intermediate (WTI), futures on NYMEX, have reached to near $79.00 in the early European session after a firmer recovery. Earlier, the oil price witnessed a responsive buying action after a perpendicular drop to near $77.50. The oil price is highly expected to gain demand led by a sheer pace in reopening measures from the Chinese administration while the release of the official oil inventory data from the Energy Information Administration (EIA) could accelerate volatility in the black gold.

The US Dollar Index (DXY) has witnessed a steep fall after failing to surpass the crucial resistance of 104.39 as less trading activity in the global market due to the festive mood is creating ambiguity among the sentiment of the market participants. The USD Index has dropped to near its intraday low at 104.28 and is likely to dance to the tunes of macroeconomic events ahead.

Western nations announce strict measures for arrivals from China

In order to safeguard their respective economies from the Covid-19 pandemic, various nations have announced safety measures for individuals, which are arriving from China. According to CNN News, the United States will require all travelers from China to show a negative Covid test result before flying to the country, effective from January 5.

Meanwhile, Italy announced that it will commence testing all arrivals from China for Covid and urges European Union countries to follow suit, after the 50% positive test rate on China flights in Milan. Fresh concerns of the Covid situation in China are likely to keep the US Dollar Index in a positive trajectory.

The idea behind dismantling of the Covid related restrictions is to achieve the extent of economic activities recorded in the pre-pandemic period. No doubt, Covid restrictions by other nations may bring short-term pain in international trading but will be beneficial for the oil demand in the long run.

Russia bans oil supply to G7 and the European Union

After the announcement of a price cap of $60.00 per barrel on oil supply from Moscow, Russian President Vladimir Putin has announced a ban on oil supply to the G7 countries and the European Union. This has triggered the risk of lower supply against the quantity demanded, which could create a disequilibrium in the short run. Western countries announced a price cap on oil supply from Russia to restrict it from funding arms and ammunition for war against Ukraine. The ban on oil transactions will run from February 1 to July 1.

Investors await official oil stock data for further action

For further guidance, investors are awaiting the release of the oil inventory data for the week ending December 23 by the United States Energy Information Administration. On Wednesday, the American Petroleum Institute (API) reported a drawdown in the oil stockpiles straight for the second week. Oil inventory dropped by 1.3 million barrels last week. However, investors will keep an eye on official oil stock data for an informed decision. As per the projections, the oil stockpiles will drop by 1.52 million barrels.

WTI technical outlook

Oil price is hovering around the upward-sloping trendline plotted from December 12 low around $79.50. The oil price is at a make or a break level, therefore investors should brace for a decisive move. The 20-and 50-period Exponential Moving Averages (EMAs) have delivered a bearish crossover at $79.36, which indicates a downside move ahead. However, the 200-period Exponential Moving Average (EMA) at $77.89 has not been surrendered yet.

Meanwhile, the Relative Strength Index (RSI) (14) is oscillating above 40.00 but a break inside the bearish range of 20.00-40.00 will trigger bearish momentum.