Crude oil and futures trading

Crude Oil Futures (CL) Demand May Improve as China Softens Restrictions

  • The Fed’s rising interest rates weigh on crude oil futures.
  • Reduced global growth results in low demand for crude oil.
  • China’s loose restrictions on Covid may boost the prices of oil.

Crude oil futures (CL) price continues to maintain an uptrend; however, we’ve seen some downside retracement in the past few days as a firm US dollar weighed on it.

The story of crude oil and many other commodities remains the same. They are being pushed down by a hawkish Fed. The fact that they are ready to raise interest rates to curb inflation and bring it back to around 2% affects the demand for the commodity.

You might think that the positive inventory data released on Wednesday in the US would increase prices, but that was not the case. Instead, US crude oil inventories went down by about 3.4 million barrels which showed increased demand in the week that ended May 13th.

Another thing keeping oil down is the general concern of reduced global growth. This saw prices weaken on Thursday. Prices, however, stabilized on Friday morning. This was primarily due to the move to reduce Covid restrictions in China.

Investors hope this will bring back demand in the global market. Authorities in Shanghai, which was heavily affected by Covid, have been reported to relax some restrictions. China being a major crude oil consumer globally, opening back up would hopefully improve global demand.

Rahul Kalantri, VP (Commodities) of Mehta Equities Ltd, said the weakness in the dollar and the possibility of China easing lockdown restrictions and increasing demand caused the volatility witnessed on Thursday. As a result, after two losing days in a volatile move, prices increased on Thursday.

“We expect crude oil prices to remain volatile in today’s session as the US President Joe Biden could meet Saudi Arabia’s Mohammed bin Salman as early as next month. Crude oil is experiencing support at $106.20-$104.40 and resistance at $110.40-$112.65,” he said. He also said that the poor economic data released in the US supported global commodity prices while pushing the dollar down by 1%.

Crude oil technical analysis:

Crude oil futures (CL) 4-hour chart
Crude oil futures (CL) 4-hour chart

Looking at the 4-hour chart of crude oil futures, we see that price is caught within an upward range, acting as a support and resistance. Moreover, CL prices keep chopping through the 30-SMA. The RSI can also be seen stuck around the 50 level. At this point, the price could continue trading in this range or break out of it. A break to the upside would be supported by RSI values above 50.