Oil Rebounds amid Post Brexit

WTI crude oil is seen recovering some lost ground on Tuesday, rising for the first time in three trading sessions, and has now moved back above $47.00/barrel mark on receding Brexit news flow and slight improvement in global risk-appetite. In the aftermath of the UK referendum, sell-off in riskier assets led to a wave of global risk-aversion trade, dragging crude oil prices lower as well. From last week’s high level of $50.50, prices are still down around 7% as flight to safety boosted demand for the US Dollar and dented demand for dollar-denominated commodities – like oil.

On the first trading day of the week, the commodity extended its steep decline for second consecutive day on mounting concerns over the British vote to leave the European Union in last week’s historic UK-EU referendum. The risk sentiment got a further blow after S&P Global Ratings lowered UK’s credit rating by 2 notches to AA, down from AAA, with a negative outlook. Moody’s Investors service had already lowered the outlook for the Aa1 British government debt from “stable” to “negative” late Friday.

The Brexit vote came-in at a time when oil was rising on diminishing worries of global supply glut and oil demand was seen picking-up. However, as optimism kicks-back, with the GBPUSD pair stopping its relentless slide, oil prices stabilized a bit on Tuesday. Adding to this, a strong rebound in global equity market is seen helping dollar-denominated commodities, including oil.

Developments surrounding last week’s referendum would continue to remain in focus as the European parliament calls for a special session to discuss Brexit issue. Meanwhile, European Council has also scheduled a two-day meeting to discuss further proceedings over UK’s exit from the European Union.

In the meantime, traders will turn their focus on today’s US economic releases that include the Final GDP print for the first quarter of 2016 and the release of Conference Board’s Consumer Confidence index for June. Today’s economic data might provide some short-term trading opportunities but the near-term direction is likely to be determined by a longer-term demand, which seems unlikely to witness a slowdown after the unprecedented event of UK ending its membership with the European Union.

Traders are likely to derive near-term movement from this week’s data on weekly crude oil inventories by API on Tuesday and the official EIA report on Wednesday. The markets are unlikely to witness a broad based selling purely based on the prevalent risk sentiment.

Technical outlook

For the commodity to extend Tuesday’s bullish momentum, it needs to build on to its move above $47.40-50 resistance, above which it could be headed back towards reclaiming $48.00 mark ahead of testing its next major resistance near $48.70-75 horizontal area.

Alternatively, weakness back below $46.50, and a follow through selling below multi-week lows support around $45.80 region, might continue exerting pressure on prices and extend the commodity’s near-term corrective move towards $44.50 support with $45.00 psychological round figure mark acting as intermediate support.