WTI erases more than 7% on its way to fresh yearly lows near $53
|- Demand outlook continues to weigh on oil prices.
- Flight-to-safety and a stronger greenback bring in additional bearish pressure.
- Coming up: Weekly crude oil inventory data by the API.
Following a technical recovery that lasted for four days, crude oil prices came under a heavy selling pressure on Tuesday and the barrel of West Texas Intermediate plummeted to its lowest level since October 2017 at $52.75. As of writing, WTI was trading at $53.20, losing 7.2% on a daily basis.
Concerns over the potential negative impact of the economic slowdown in China on the global demand outlook weighed oil prices on Tuesday. Earlier today, People's Bank of China's Research Head Xu Zhong said that the downward pressure on China's economy has significantly increased and partially due to their latest policy moves. Additionally, Chinese Finance Ministry official Tan Long noted that economic uncertainties have risen.
Meanwhile, the sharp drop witnessed in global equity indexes continues to hurt the demand for risk-sensitive commodities. "For the time being it's more about risk. When the stock market comes off 8 or 9 percent, it tends to conjure up images of a weak global economy and that feeds into expectations of weaker than expected oil demand," Jim Ritterbusch, president of Ritterbusch and Associates, told Reuters on Tuesday.
Later in the session, the API will publish its weekly crude oil stock report.
WTI technical outlook by FXStreet Chief Analyst Valeria Bednarik
Ahead of US inventories data, the US benchmark hovers a cents above the 53.00 level, extremely oversold but still bearish according to technical readings in the daily chart, as indicators resumed their declines within oversold territory, while the commodity continues developing below a strongly bearish 20 DMA.
For the shorter term, and according to the 4 hours chart, WTI is also poised to extend its decline, accelerating its slump after losing the battle around its 20 SMA, as technical indicators head south vertically, entering oversold territory. US oil has multiple relevant monthly highs at around 52.00, a possible bearish target and a level that if reached, could kick-start a bullish corrective movement.
Support levels: 52.70 - 52.00 - 51.40.
Resistance levels: 53.65 - 54.10 - 54.85.
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