WTI keeps recovery moves above $41.00 amid cautious optimism

• WTI extends bounces off $39.51 to cut most of the losses marked the previous day.
• Anticipated recoveries in Asia, the largest oil consumers, favor the bulls.
• Consolidation in risk sentiment, hopes of soft Brexit, a deal on US stimulus join upbeat EIA inventories.
• US dollar moves, risk headlines can play their roles amid a light calendar.

WTI stays above $41.00, currently near $41.20, before Tokyo opens for Friday’s trading. The energy benchmark dropped heavily the previous day before recovering from $39.51. While fears of the coronavirus (COVID-19) and a further delay in the US stimulus keep the oil bulls challenges, hopes of recovery in Asia, led by China, joined the slump in the weekly inventories to favor the recovery moves.

China leads the recovery moves…

Although Beijing couldn’t offer welcome inflation data in September, flashed on Thursday, the activity pick-up in the world’s second-largest economy continues. The same could be gauged from an increase in China’s crude oil imports that grew 17.6% YoY to 48.5 million tonnes in September. Not only the dragon but India and Japan are also likely to mark a notable increase in oil demands considering a comparatively less severe pandemic impact, for now, than the west.

Also on the positive side were the weekly inventory data, from the Energy Information Administration (EIA), which slipped below -2.835M forecast to -3.818M for the week ended on October 09. Earlier in the week, figures from the private data provider, the American Petroleum Institute (API), also marked a surprise draw in stockpiles worth -5.42M for the noted period.

Elsewhere, the recent signs concerning Brexit and the US stimulus have been positive. German Chancellor Merkel’s recent statement that the talks are constructive and intensive gives, coupled with no end to the Brexit negotiations on the expiry of October 15 deadline, keeps the market hopeful of a soft departure of the UK from the bloc. On the other hand, US House Speaker Nancy Pelosi ruled out the market forecast of no stimulus till January whereas Treasury Secretary Steve Mnuchin also said that if a deal between the two could be reached Trump would “weigh-in” with Senate Republican leader Mitch McConnell. 

As a result, S&P 500 Futures part ways from the previous day’s downbeat performance of Wall Street, up 0.28% intraday to 3,485.

Moving on, global oil traders will have to follow the macro headlines closely amid a light calendar. In doing so, the market’s inclination for the US dollar will also be the key to watch.

Technical analysis

Although the 100-day EMA level of $39.77 restricts the quote’s short-term downside, bulls are likely to remain cautious unless breaking a falling trend line from September 18, at $41.67 now.