Higher Supply and Lower Demand Outweighs Inflation in Oil

Published On: 27 July 2021, 2:30 PM | Jeraldine Tan, Senior Dealer  

  • Oil had been on a steady increase this year as with most commodities reflecting inflation that comes with the US’s aggressive monetary policy to keep the economy afloat.
  • The past few weeks saw much volatility in the oil markets with multiple headlines swinging markets up and down. For starters, there were headlines that the United Arab Amirates (UAE), one of the largest producers, could not come to an agreement and OPEC meeting was postponed. UAE also said they will produce more. Market hence came off to a support level around 72.50 at which traders who “sell the rumour and buy the news” entered and the market traded back up.
  • Last Sunday, however, OPEC+ came to an agreement where they agreed to increase production. This then triggered a further fall to earlier zone of consolidation and trendline support around 67.50-70.00. This looked like an overshoot were bears sold the news and also sold on concerns of Delta variant reducing demand. What followed was a dead cat bounce and market is back up, recovering around 50% of the drawdown from the all-time high.
  • With OPEC+ producing more and Delta variant forcing more cities to implement control measures that will reduce consumption, bearish traders would be looking to short. An area to short would be around 75.00 where market test the triangle top trendline, with target back down to bottom trendline area. Bulls may also view the inflation effect to be stronger and may buy a breakout of 75.00 level or when market retests bottom trendline for a good risk reward trade.

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