Oil markets sag under “delta hedging”

Asset classes are going their own ways now regarding their assessment of the risks of the delta-variant. Oil markets continued falling overnight as energy markets fret about future consumption patterns caused by delta-variant restrictions, actual or threatened, just as OPEC+ starts ramping up monthly production. The cases cropping up in China are a genuine concern. If they spike markedly, resulting in inevitable firm action from the government, we can expect oil prices to reflect that reality. 

Brent crude closed below its 100-day moving average (DMA) overnight at $69.80 a barrel, finishing 1.50% lower at $69.20. WTI closed below its 100-DMA at $67.30 a barrel, falling 1.70% to $68.00 a barrel. Today’s return of Japan and Singapore markets has seen some bargain hunting occurring from physical buyers, which has lifted Brent crude and WTI by 0.65%, respectively, to $69.65 and $67.25 a barrel. Today’s rally is much weaker in scope compared to the falls overnight, and oil’s technical picture remains fragile.

Overnight, both contracts fell quite a bit further intra-day than the daily closes suggest. Notably, Brent crude and WTI traced out double bottoms on the daily charts at $67.50 and $65.00 a barrel, respectively. These levels form the first critical support line for both contracts, with failure $65.00 for Brent crude and $62.50 a barrel for WTI.

Resistance lies at the respective 100-DMAs, which today are at $69.90 for Brent crude and $67.30 a barrel for WTI. Whilst delta concerns remain elevated; further gains will likely be limited to $72.00 and $71.00 a barrel. 

With sentiment fragile, tonight’s US API Crude Inventories could negatively affect prices if inventories rise sharply. The API data is often ignored by markets in favour of the official numbers that come out tomorrow night NYT. But when the data is running with the market sentiment wind behind it, it can often blow the boat onto the rocks.

Content is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Business Information & Services, Inc. or any of its affiliates, subsidiaries, officers or directors. If you would like to reproduce or redistribute any of the content found on MarketPulse, an award winning forex, commodities and global indices analysis and news site service produced by OANDA Business Information & Services, Inc., please access the RSS feed or contact us at info@marketpulse.com. Visit https://www.marketpulse.com/ to find out more about the beat of the global markets. © 2023 OANDA Business Information & Services Inc.