Crude Oil Prices Climb as Recovery Gathers Pace, Iranion Concerns Ease

• Crude oil prices climbed amid strong US data, ebbing Covid-19 cases around the globe

• US-Iran nuclear talks remain challenging, easing fears about an influx of Iranian oil in the near term

• WTI has found some support near $62.20 – the 161.8% Fibonacci extension

Crude oil prices traded slightly higher during the Asia-Pacific mid-day session after surging 3.1% on Friday. A sting of upbeat manufacturing and service PMI readings bolstered the outlook for energy demand in the West as Covid-related restrictions are eased. The arrival of the summer driving season in the US and Europe, alongside a steady economic recovery in China, may lend further support to oil prices.

The flash Markit US Composite PMI index came in at 68.1, a big leap forward from April‘s reading of 63.5. This points to a full-blown recovery in the US economy as demand for goods and services soars at an unprecedented pace.the Euro area also registered upbeat PMI readings, with expansion in the service sector quickening in early May. This painted a rosy picture of economic recovery as vaccine rollouts helped to heal the pandemic’s impact.

In the Asia-Pacific, the number of daily new Covid-19 cases have fallen in India and Japan – the worlds top oil importers - over the past few weeks. India has seen its 7-day average of new coronavirus infections declining from a peak of 391,232 to 263,722 on May 22nd (chart below). Cases in Taiwan and Malaysia are still rising however, casting a shadow over the outlook for energy demand in the region. Many developing countries in Asia are still struggling with relatively slow progress on vaccination rates and extended lockdowns

New confirmed Covid-19 cases in India

Concerns surrounding higher Iranian oil output ebbed towards the end of last week after a US Department of State representative said that “many challenges” remain on the road to reinstate the Joint Comprehensive Plan of Action (JCPOA). A potential removal of economic sanctions on Iran, including limiting its oil exports, may pave the way for injecting over 2 million bpd of crude supply into the market. This may disrupt a fragile supply-demand relationship as OPEC+ calibrates a gradual unwinding of production cuts in the months to come. But now it looks like a concrete nuclear deal remains elusive in the near term, especially considering that Iran is heading towards a presidential election on June 18th.

Technically, WTI failed to breach a key resistance level at around 66.50 (the 200% Fibonacci extension) for a third attempt. This resulted in a bearish “Double Top” chart pattern that may hinder further upside potential. Prices have also breached below an “Ascending Channel” as highlighted on the chart below, suggesting that near-term trend has likely turned bearish. An immediate support can be found at 62.20 – the 161.8% Fibonacci extension.

The MACD indicator formed a bearish crossover and trended lower, suggesting that bearish momentum is dominating.

WTI Crude Oil Price – Daily Chart

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