After the attacks suffered by Saudi Aramco a week ago, it has come to light that China has enough oil inventories to self-supply for approximately 80 days.
Although the Chinese authorities have not revealed precisely their inventory level, it is estimated that the accumulated levels could reach 788 million barrels. This accumulation could lead them to stop imports for approximately 90 days.
The main consequence of this situation by China would be the reduction of import levels. This scenario could lead to the price of crude oil to develop a severe fall.
On the other hand, according to the latest publication of the CFTC, the Commitment of Traders Report (COT) revealed an increase in bearish sentiment. Institutional operators reported on Tuesday 17, a rise of 3.76% (WoW) versus an increase of 0.52% (WoW) in long positions.
Likewise, institutional traders reported for the fifth consecutive week the possession of more than 80% of the buyer side positions. However, these decreased from 84.15% to 83.70% in the last publication of the CFTC. This situation makes us expect a correction of the buyer sentiment.
Technical overview
Crude oil in its daily chart shows a corrective formation in progress. The current cycle started after the Christmas low at $42.45. From this zone, Crude oil soared in a five-waves sequence reaching the yearly high at $66.57 in last Apri 23. Once reached the highest level of 2019, the price action drove to retrace till $50.72 on June 05.
For the long-term, the last sequence suggests the formation of a corrective pattern. The price will likely make a new bearish leg. In our experience, the considerable high volume watched at the end of wave B, is an exhaustion signal.
In the short-term, the price action develops a consolidation as a pause of the bearish move after the Saudi Aramco attack. The breakdown below the $58.21 level, could drive to Crude oil to see new lows. The potential target area is between $53.85 and $52.11. The invalidation level is at $62.50.
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