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WTI Crude bounces away from $48

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Further indications are being noticed regarding a possible trading range for WTI Crude between $55 and $48 taking shape following the commodity bouncing away from $48 for the second successive day. WTI Crude has even advanced to $49.31 on Wednesday following the overnight HSBC Manufacturing PMI from China returning to growth, which is easing fears somewhat regarding possible less demand for the commodity. Despite the advance this morning, I am cautious over the prospect that WTI Crude will continue progressing up the charts. In fact, due to US Crude inventories being released later this afternoon I prefer the chances of further increased inventories weighing on the oversupply equation and leading to WTI Crude slipping back to $48, than I do in seeing the commodity reach $50.

The breakout throughout the past month does show investor sentiment towards oil has changed, but the risks of continuous pullbacks like we are encountering remains strong until less production is noticed. Due to supply levels outstretching demand by such an aggressive amount, I still feel the economic outlook for the oil markets is rather bleak. US inventories are reaching record levels and there is going to be a resumption of supply from Libya’s largest oil field, as well as likely increased output from Saudi Arabia and Russia in the upcoming months. While it is conceivable that lower rig counts from the US are becoming more regular, WTI bulls really need this to result in less production for me to shift my bias to a more bullish outlook for WTI.

Although Gold is not being trading in a range by any means, the yellow metal seems to have found a temporary bottom around $1190. Gold came under pressure when Federal Reserve Chairwoman Janet Yellen strongly hinted that the Federal Reserve’s commitment to begin raising interest rates this year remains unchanged, with her statements yesterday leading to suspicions the second half of the year is the target for the FOMC. As expected,  Janet Yellen also mentioned possible concerns for the Federal Reserve  like international developments outside the United States and lower inflation expectations following the decline in the price of oil, so interest rate hike expectations for the first half of the year have been pushed back with this being a likely primary factor behind Gold rebounding to $1211.

Written by Jameel Ahmad, Chief Market Analyst at FXTM.

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