Oil recovery proves short-lived as market uncertainty limits demand pickup

• Oil is unable to keep its head decisively above the pivotal level of $75.27.
• Investors are in a wait-and-see mode ahead of Wednesday’s US CPI and Fed decision.
• The US Dollar Index trades above 105.00 after the European elections showed an advance of far right parties.

Oil prices look bleak on Monday, with the West Texas Intermediate (WTI) benchmark trading broadly steady,  after elections in the European Union showed an advance from far-right parties. Even though the centre parties held their ground, the far right gained presence in the Parliament, making it more likely that coalition talks head into gridlock, delaying reforms and decision-taking on economic development that would spark up demand for Oil. Apart from the EU elections, investors are keeping their powder dry ahead of Wednesday, when the US CPI report will be published and the US Federal Reserve will likely give further clues on the timing for a first interest-rate cut. 

Meanwhile, the US Dollar Index (DXY) is trading above 105.00 after rallying higher on Friday driven by the stellar performance in the Nonfarm Payrolls numbers. The uncertainty stemming from the European election results added fuel to the fire in favor of a higher US Dollar, but until Wednesday the Greenback is expected to trade sideways. 

At the time of writing, Crude Oil (WTI) trades at $75.22 and Brent Crude at $79.52

Oil news and market movers: Another discount from Aramco

• Saudi Aramco is cutting Oil prices for July for the Asian markets. A softer demand outlook in the region is the main driver for the cut, according to Bloomberg. 
• Oil prices might decline further for this week, according to Polymerupdate.com, with the demand-supply outlook from OPEC, EIA and IEA as main drivers together with the US Federal Reserve rate decision. 
• The outlook for Oil remains bullish, according to Goldman Sachs’ head Commodity Strategist Daan Struyven. Struyven sees Brent hitting $86 per barrel by the third quarter over solid summer demand, Bloomberg reports. 
• Iraq is set to reach a final deal with Kurdistan to restart Oil exports. 

Oil Technical Analysis: OPEC+ is not the Fed or ECB

Oil prices are heading towards the Fed rate decision in a depressed state following their near 10% slide lower last week (from last week’s high to last week’s low). With uncertainties on the horizon in Europe and sluggish demand in the US – where the Fed might keep rates steady for longer – all eyes look to Asia. This triggers an overload in offer from the Middle East to the region with price cuts, as seen by Saudi Aramco. 

Looking up, the pivotal level near $75.27 needs to be recovered firmly first before aiming for the key Simple 100-day and 200-day Simple Moving Averages (SMA) at $79.14 and $79.33, respectively. Next, the 55-day Simple Moving Average (SMA) at $80.44 is level with a lot of resistance where any recovery rally could pause. Once broken through there, the road looks quite open to head to $87.12. 

The $76.00 marker is still acting as a resistance with the $75.27 level playing a crucial role if traders still want to have an option to head back to $80.00. However, risks are skewed towards another leg lower should sluggish demand during the summer prevail and send Oil further down, all the way to $68.00, below $70.00.

US WTI Crude Oil: Daily Chart