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OIL: Crude Rallies On China Stimulus & Supply Risks

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Oil prices rallied on Tuesday driven by China stimulus, hurricane activity in the Gulf of Mexico and an escalation of tensions between Israel and Iran-backed Hezbollah. Iran has said it is prepared to drive de-escalation but a war could disrupt its oil supplies. The weaker USD (BBDXY -0.5%), which fell on lower US yields due to weak consumer confidence, also provided support to crude.

  • WTI rose 1.7% to $71.54/bbl, around where it is currently trading, after reaching a high of $72.40, briefly breaking above the 50-day EMA at $72.38. It is now down only 1.5% in September. Moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. Initial support is at $67.58.
  • Brent is also 1.7% higher at $75.17/bbl after a high of $75.87. It is down 2.3% this month. This recovery in oil prices is still seen as corrective but it has allowed the oversold condition to unwind. The 20-day EMA has been breached and the 50-day at $76.45 is initial resistance. The bear trigger is at $68.68.
  • Israel kept up its strikes on Hezbollah targets in Lebanon on Tuesday for the worst days since the 2006 war.
  • The PBoC announced rate cuts on Tuesday, as well as a 25bp reduction in the RRR. There are also measures to support China’s equity market and stabilise bonds. There has been concern it wouldn’t meet its 5% growth target, which had spooked crude.
  • Bloomberg reported a 4.34mn barrel drawdown in the US, according to people familiar with the API data. Gasoline fell 3.44mn and distillate 1.12mn. The official EIA data is released today.
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Oil prices rallied on Tuesday driven by China stimulus, hurricane activity in the Gulf of Mexico and an escalation of tensions between Israel and Iran-backed Hezbollah. Iran has said it is prepared to drive de-escalation but a war could disrupt its oil supplies. The weaker USD (BBDXY -0.5%), which fell on lower US yields due to weak consumer confidence, also provided support to crude.

  • WTI rose 1.7% to $71.54/bbl, around where it is currently trading, after reaching a high of $72.40, briefly breaking above the 50-day EMA at $72.38. It is now down only 1.5% in September. Moving average studies are in a bear-mode set-up, highlighting a dominant downtrend. Initial support is at $67.58.
  • Brent is also 1.7% higher at $75.17/bbl after a high of $75.87. It is down 2.3% this month. This recovery in oil prices is still seen as corrective but it has allowed the oversold condition to unwind. The 20-day EMA has been breached and the 50-day at $76.45 is initial resistance. The bear trigger is at $68.68.
  • Israel kept up its strikes on Hezbollah targets in Lebanon on Tuesday for the worst days since the 2006 war.
  • The PBoC announced rate cuts on Tuesday, as well as a 25bp reduction in the RRR. There are also measures to support China’s equity market and stabilise bonds. There has been concern it wouldn’t meet its 5% growth target, which had spooked crude.
  • Bloomberg reported a 4.34mn barrel drawdown in the US, according to people familiar with the API data. Gasoline fell 3.44mn and distillate 1.12mn. The official EIA data is released today.