Oil Hovers near 2 Month Low as Fears of Global Supply Glut Resurface

WTI crude oil hovered around $45.00/barrel mark during European trading session on Tuesday as markets remained concerned over the elevated levels of crude oil inventories.

Crude Oil dropped 0.19% trading at 45.75$ per barrel, Brent Oil is down 0.32% trading at 46.70.

Oil drops on receding worries of supply disruption

On Monday, oil prices fell around 1.5% as supply disruption worries receded after it became clear that Turkish ports were operating normally and Oil prices showed little reaction to Turkey failed coup. Concerns of supply disruption in wake of weekend’s failed military coup in Turkey kept oil prices buoyant late Friday. Turkey has been a major transit hub for oil supplies supply headed to Europe and other Atlantic markets from Russia, the Caspian region, and the Middle East.

Last week’s recovery turns short-lived

Last week oil managed to recover some lost ground on Friday, after economic data from China, the world’s largest energy consumer, eased concerns over faltering Chinese demand. According to the data released on Friday, Chinese economy recorded a growth of 6.7% year-on-year during the second quarter of 2016. Moreover, China’s industrial production rose 6.2% in June and was better-than market estimates of 5.9% year-on-year expansion.

Adding to this, upbeat US economic data bolstered the outlook for energy demand on receding fears of China-led economic slowdown. US monthly retail sales climbed by a seasonally adjusted 0.6% and June industrial production grew 0.6% in June, recording the fastest monthly rate in 11 months.

Oil, however, dropped on Monday and fell back towards two-month lows as coup jitters subsided and worries of a global over-supply resurfaced. Oil posted gains on Friday despite a notable growth in the US oil rig count. Data from Baker Hughes revealed a sixth weekly rise in the number of active US oil rigs in the past seven weeks to the highest number since April, suggesting producers’ willingness to invest in new production at current prices. Earlier last week, weekly EIA report revealed a fall in US crude oil inventories, but also showed an increase in domestic output that added to signs of an increasing glut.

Concerns of a global oversupply had been a key drag on oil prices for the past two years. However, prices have managed to recover from multi-year low levels touched in January this year. The gains, however, remained capped amid floppy demand that might continue to weigh on crude prices in the near-term.

Technical outlook

On the immediate downside, bulls are likely to make an attempt to defend two-month lows support near $44.50 level, which if broken should immediately drag it to test 100-day SMA support near $44.00 round figure mark. A follow through selling pressure now seems to pave way for continuation of the commodity’s corrective move, initially towards $43.00 horizontal support and eventually towards the very important 200-day SMA support around $42.00-$41.80 region.

Conversely, recovery momentum now seems to confront immediate resistance near $46.00 handle. Even if oil prices manage to extend its momentum above this immediate resistance, any further upside now seems to be capped near $46.50-60 strong resistance. Only a decisive strength above $46.50 important resistance might negate the near-term bearish bias and continue boosting the commodity towards its next major resistance near $48.00 level, marking 50-day SMA region.