WTI keeps falling, fundas remain bearish, short-term

  • WTI bears keep at it and the prospects of a correction fade. 
  • In the medium term, bulls could well be back, but fundas remain bearish nearer-term due to covid fears. 

The price of oil has plummeted at the start of the week, now by over 8% as the market continues to sell-off into the close on Wall Street at fresh lows. 

At the time of writing, 

West Texas Intermediate (WTI) crude oil is gyrating between the low of $65.60 and the current market price of 65.85 after falling from a high of $71.66.

Oil dropped by the most in 10 months following the weekend announcement that the OPEC+ group agreed to raise production by 400,000 barrels per day monthly.

The news that Saudi Arabia and the United Arab Emirates reached a deal on a dispute that led to the collapse of group talks early this month has elevated supply fears just as investors fear for the worse in terms of the delta variant. 

Global inventories have been falling as economies recover from the pandemic, but the recent spike in coronavirus cases throughout Asia, EMs and Europe are now feard as some form of a blueprint for the US and the worst to come.  

Markets are fearing the impact of the delta (Indian) variant now hitting the US.

On Monday, the Vix was back above 20, soaring to a fresh daily high of 24.78 from 19.27 the low.  The S&P 500 is down over 2% at the time of writing. 

Weekend reports have centred around the UK's conundrum in that it had tallied 54,674 new coronavirus cases on Saturday, the biggest one-day increase since January, and 41 new deaths, just as it intends to remove lockdown restrictions. 

Meanwhile, the number of new infections is rising in southeast Asia and most U.S. states as well with the highly infectious Delta variant taking hold.

However, investors are also of the mind that the UK's full vaccination rate for 50-65-year-olds are around 86% but they are only 66% for the US. That’s a big difference and a fertile breeding ground for the delta variant. 

However, analysts at TD Securities have spun their own variant in the dynamics in the market. 

TD Securities estimates that ''the additional monthly 400k bpd output secured by this weekend's OPEC+ agreement should keep the market on a tightening trajectory given the epic recovery in energy demand.''

''The aggressively spreading delta-variant is raising fears of a more damaging hit to global mobility, but road traffic in Asia continues to recover in the most recent week,'' the analysts argued.

''Meanwhile, air travel continues to rise at a fast clip, particularly in Europe, but with the US and China also continuing to post gains.''

Additionally, the analysts said, ''while Chinese purchases of raw materials have slowed of late, strong refinery runs in China highlight that the recovery in energy demand is diverging from that of broad commodities.''

Lastly, the analysts argued, ''most importantly,'' that, ''US drivers continue to fuel the recovery in energy demand, where mobility restrictions may be less likely to take place.''

''In turn, while global macro concerns may be weighing on energy markets, OPEC's agreement is creating a constructive set-up for crude prices.''

WTI technical analysis

Meanwhile, the longer-term technicals could coincide which such a bullish theory.

As per the analysis on 15 July, WTI prints fresh lows within bearish daily structure, and in this week's, Chart of the Week: WTI on the verge of significant decline? while the price didn't give the bears the discount which they might have enjoyed, it has, nevertheless, moved to the projected target as follows:

Prior analysis

''...Combine that with what could be argued to be a bearish head & shoulders ...

... bears can be on the lookout for bearish structure following a restest of the M-formation resistance area between 73.20 and 74.10.  

With that being said, there is no guarantee that the neckline of the M-formation will be retested.

There are equal probabilities that the price will continue to melt deepening into the support area in the closing sessions for the week. ''

Live market update

At this juncture, an upside correction would be expected in a period of accumulation that could eventuate into a medium-term bullish structure. 

With that being said, there are prospects of a monthly 61.8% Fibonacci retracement in the 64.50/60s support area on a break of $65 the figure (as illustrated above and below):

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