Oil Weighed Down by Brexit and Economic Concerns

WTI crude oil was trading lower on Wednesday as Brexit jitters makes a comeback, fueling concerns of a slowdown in global oil demand. Adding to the ongoing concerns of a potential rise in crude oil production led by a jump in the number of US oil rigs, worries related to Britain’s decision to leave the European Union, termed as Brexit, is fueling uncertainty over the implication of the decision on UK’s economy and global financial markets and forcing investors to take their money out of the riskier assets – like equities and commodities, including oil. Investors are looking for clarity over the process and the timing of Brexit.

At the time of writing ,oil edged lower for third consecutive day and trading at 46.04, just above a multi-week low level support near $46.00 mark. The slide in crude oil is being amplified by a stronger US Dollar that is getting a safe-haven boost on the back of global risk-off sentiment and is weighing on dollar-denominated commodities.

Global supply glut worries resurface

The commodity failed to extract support from fresh militant attacks on Nigeria’s oil infrastructure that could lead to supply disruption, which is seen supportive for oil prices. The effect, however, got negated as a recent survey conducted by Bloomberg showed that OPEC output rose by 240,000 barrels a day in June to 32.88 million.

Crude oil prices have been gaining traction since the beginning of this year on unplanned supply disruption from Canada and Nigeria. However, market participants now believe that renewed signs of an oversupply in global markets or slowing trend in production declines would keep sentiment fragile and is bearish for oil prices in the medium-term.

Incoming data to provide fresh impetus

Oil traders now await the release of weekly US crude supplies data from the American Petroleum Institute (API), ahead of the official report from the Energy Information Administration (EIA) on Thursday, for immediate momentum play. Meanwhile, focus would remain on FOMC meeting minutes on Wednesday ahead of Friday’s NFP release that would determine the near-term direction for the US Dollar and eventually drive crude oil prices.

Technical outlook

Bulls would be disheartened if oil breaks below $46.00-$45.80 strong support, marking 23.6% Fibonacci retracement level of $27.73-$51.64 2016 up-swing that has been held since mid-May. Sustained weakness this immediate important support now seems trigger a fresh leg of near-term corrective move, initially towards $44.50 intermediate horizontal support and eventually towards its next major support near $43.00 handle (nearing 38.2% Fibonacci retracement level).

Conversely, rebound from $46.00 immediate support now seems to confront immediate resistance near $47.40-45 zone, above which the commodity is likely to rise to $48.30 before making a fresh attempt to retest $49.50-$50.00 strong resistance zone. A convincing strength above $50.00 handle might negate any near-term bearish outlook and open room for resumption of the well-established bullish momentum.