By: Harry Altham, Energy Analyst, Market Analysis EMEA & Asia
After a lesser seen down-day (in 2023 at least) yesterday, Brent and WTI have both made another uncertain start this morning. Prices are down across the forward curve (by a meagre maximum $0.13) in both benchmarks; the Brent April/May spread has narrowed to $0.07/bbl backwardation despite widespread worries over an upcoming race for crude barrels by increasingly pressured refiners next month as the Russian oil product ban comes into play. The January rally is raising the possibility of the 20-day moving average approaching a Golden Cross with the 100-day moving average in February. That said, the previous example of a near cross of these moving averages (in November) saw momentum decisively shift to bearishness amid post-war high aggregate trading volume, which elevated wider sell-side momentum due to weak demand conditions in China and across the OECD. Yesterday, the 100 day moving average proved to provide solid resistance, with Brent and WTI bouncing off the level to move lower.
Though higher interest rates would put the brakes on economic activity to a certain extent (European manufacturing PMI has strong historical correlations with gasoil consumption), we think the data reinforce oil bulls’ outlook for the next several months. The migration of yield investors to the euro and the pound looks set to sustain the climbdown of the dollar against these currencies; a Fed pivot is causing a natural shift to risk on assets and is assisting the dollar’s retreat from late September highs. Behind the United States, the European Union is the world’s second largest consumer at around 15M bbd, meaning conditions in the currency play a pivotal role in the global market.
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