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Looking to the Futures

COVID Concerns and Middle East Tensions Weigh on Oil

Fundamentals

Oil has taken a downturn as the calendar has turned to August with three consecutive down trading days following weaker than expected economic data from China and the United States.  China announced Monday a sharp decline in factory output growth in July and data from the Institute for Supply Management index of national factory activity showed July’s reading fell to 59.5, its lowest result since January.  COVID infection rates are on the rise in both the US and China as the delta variant continues to spread rapidly.  China has recently implemented multiple travel restrictions and quarantine orders across the nation.  In the United States, the Centers for Disease Control announced 72,000 new cases per day were reported last week, a 44% increase over the prior week.  Dr. Anthony Fauci has stated things are going to get worse, but he does not expect the US to fully lockdown again.  Coupling with the decrease in industrial demand, OPEC+ moved forward in July with previously announced production increases and those increases are expected to continue in August.  The oil marketplace may struggle to balance increasing supply with declining demand as the world deals with outbreaks of the virus.

Rising tensions in the Middle East are also weighing on the market.  Last week a drone attack on The Mercer Street, an Israeli linked oil tanker, killed two crew members.  Israel, the U.K., and the U.S. blamed the attack on Iranian interests, which the Iranian government quickly denied. An Iranian Foreign Ministry spokesman denied responsibility for the attack during a press briefing on Sunday, yet Iran’s state-run Al-Alam agency had broadcast the attack was a retaliation to an Israeli attack on a Syrian airport without stating who was responsible.  These actions cast doubt on the chances of an agreement being reached between Iran and US and EU led coalition of nations seeking to revive a 2015 pact limiting Iran’s nuclear activities.  The last round of negotiations broke last month without an agreement days before elections named Ebrahim Raisi the new Iranian president.  Sanctions on Iranian banking and oil exports have been in place until a new agreement is reached. Currently no resumption meeting has been scheduled.

 

Technicals

Looking at Light Sweet Crude Oil September 2021, CLU21.  The selloff to start the week has driven prices below both the 20-day and 50-day Simple Moving Average, but they remain well above the 200-day SMA.  Relative Strength has trended down but remains well within the middle range at 43.366.

 Our partners at Trading Central see daily support at 69.80 and 69.20, with resistance at 71.50 and 71.95.

 

20-Day SMA       71.529  

50-Day SMA       71.714

200-Day SMA    61.304

14-Day RSI          45.032

 

Contract Specifications

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