Oil prices rebound as U.S. House passes huge stimulus bill (With Trading Strategy)

Oil prices rebounded more than $1 on Monday after the U.S. House of Representatives passed a huge stimulus package, although a drop in China’s February factory activity growth capped gains.

West Texas Intermediate crude rose 1.74% to $62.538 per barrel, and Brent crude rose 1.86% to $65.501 per barrel by 15:50(GMT+8) on Monday.

“Oil prices are recovering this morning in line with most risk assets on the back of the U.S. stimulus bill passing the House,” Stephen Innes, chief global markets strategist at Axi, wrote in a note on Monday.

The U.S. House passed a $1.9 trillion coronavirus relief package early on Saturday, lifting investors’ risk appetite and Asian stock markets. The package will now move to the U.S. Senate for further deliberation.

The approval of Johnson & Johnson’s COVID-19 shot also buoyed the economic outlook.

Manufacturing data from top Asian oil importers were mixed, however, as China’s factory activity growth slipped to a nine-month low in February, while manufacturing in Japan expanded the fastest in more than two years.

Crude supplies going into top importer China are expected to ease in the second quarter as the oil price rally cooled demand. Preliminary data also showed that South Korea’s February imports are down 14.7% from a year earlier.

Iran on Sunday dismissed opening talks with the United States and the European Union to revive the 2015 nuclear deal, insisting Washington must first lift the unilateral sanctions that have sharply reduced Iranian oil exports.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, will meet on Thursday and could discuss allowing as much as 1.5 million barrels per day of crude back in the market.

The big question is whether OPEC+ will provide enough of them.

A crude glut that piled up during the pandemic is vanishing fast. Global inventories are plunging at the steepest rate in two decades, according to Morgan Stanley. Prices have rallied to pre-virus levels, while U.S. production has taken a hit from freezing storms. Talk swirls of market supercycles, and even the return of $100 oil.

It is unclear if the group will act vigorously enough. Wary of the virus’s persisting threat to demand, Saudi Energy Minister Prince Abdulaziz bin Salman has urged fellow producers to remain “extremely cautious.”

If the alliance agrees an output hike that falls short of requirements, however, it could trigger a further price surge -- and the group would be forced to deal with its unwelcome consequences.

“We think if the combined (OPEC+) increase does not exceed 500,000 bpd, that will be bullish for prices,” analysts at Singapore’s OCBC bank said.

“There’s a real risk they’re going to over-tighten the market,” said Bill Farren-Price, a director at research firm Enverus and veteran observer of the cartel. “It’s already super-tight, and if OPEC just focuses on keeping prices up, that’s going to eventually provoke supplies from their rivals.”

The Organization of Petroleum Exporting Countries and its allies rescued the global oil industry from an unprecedented slump last year by slashing production when the coronavirus crisis pummeled demand. The strategy has revived international benchmark Brent crude to $67 a barrel, shoring up revenues for the producers’ battered economies.

Bullish Calls

The shift to a tightening market has sparked a wave of bullish projections.

Source: Bloomberg

Goldman Sachs Group Inc. sees Brent hitting $75 a barrel in the third quarter as a new commodities supercycle beckons, while trading giant Trafigura Group says it’s “very bullish” on the months ahead. Socar Trading SA, a unit of Azerbaijan’s state oil company, predicts $80 could be reached this summer and triple digits within two years.

“The fear is that in 12 months there will be a shortage” even if OPEC+ revives output, said Socar Chief Trading Officer Hayal Ahmadzada. “It will drive the price very high, very fast.”

It’s still unclear what exactly OPEC+ will decide.

Russian Deputy Prime Minister Alexander Novak has signaled that the country once again wants to proceed with an increase, noting on Feb. 14 that “the market is balanced” already. Saudi Arabia sounds more reserved, urging its counterparts to recall the “scars” of last year’s collapse.

Prices are still far below the levels most OPEC nations need to cover government spending, and the International Energy Agency -- a leading forecaster -- anticipates a market setback in the second quarter as a seasonal lull briefly causes inventories to accumulate again.

If Riyadh wants to limit the overall size of the group’s increase, it has a powerful bargaining chip: the pace it chooses to return the extra 1-million barrel cutback that’s supposed to expire at the end of next month.

But for some in the market, the kingdom should instead be opening the taps wide. Keeping prices high will only rekindle investment by U.S. shale drillers, they contend, and bring a flood of new supply that cancels out OPEC’s hard work.

Even the full 1.5 million barrels isn’t sufficient to satisfy demand, says Jan Stuart, global energy economist at Cornerstone Macro LLC.

“The market needs more -- but I don’t hear anybody talking about more,” said Stuart. “There’s an acute need for oil. The most obvious risk is they keep holding too much oil back.”

Trading Strategy (source: Trading Central)

Pivot: 62.30

Our preference: long positions above 62.30 with targets at 62.90 & 63.35 in extension.

Alternative scenario: below 62.30 look for further downside with 61.85 & 61.35 as targets.

Comment: the RSI advocates for further advance.

Supports and resistances:

63.80

63.35

62.90

62.69 Last

62.30

61.85

61.35

Pivot: 65.25

Our preference: long positions above 65.25 with targets at 65.90 & 66.35 in extension.

Alternative scenario: below 65.25 look for further downside with 64.70 & 64.25 as targets.

Comment: the RSI is bullish and calls for further advance.

Supports and resistances:

66.80

66.35

65.90

65.66 Last

65.25

64.70

64.25

Guideline for Trading Central strategy 

Trend chart reading guideline

1. First look at the time period in the upper left corner of the chart: ·30MIN and 1H chart shows the trading suggestions for intraday ·Daily chart shows the market trend analysis in next 2-3 days

2. The blue horizontal line on the chart marks the pivot: pivot indicates the reversal of the market. When the price is above the pivot, it indicates an upward trend, when the price is below the pivot , it indicates a downward trend. When the price breaks through the pivot, the trend is reversed.

3. The red and blue thin curves in the Candlestick chart chart are technical indicators: Red line is MA20+Bollinger bands, Blue line is MA50. under the Candlestick chart chart are also the technical indicators: Blue line is RSI, Red line is 9MA;

4. The green horizontal line is the resistance level for a price increase, and is also the profit target for long orders; the red horizontal line is the support level for a price decrease, and is also the profit target for short orders.

How to use TC strategy？

1.[Pivot] is the reversal line of the market trend. When the price up the pivot line which means in Bullish, you can open a long position or Buy. on the contrary, when the price under pivot line which means in bearish. You ‘d better make short positions or Sell. 

2. [our preference] is the main trading suggestion for your reference. You can exit your trading refer to this target or close positions before it.

3. [Alternative scenario] is the plan B for your reference. 

4. [Comment] is the technical analysis of market trends and technical support for trading strategies. 

5. [Supports and resistance] Supports are levels where the price tend to find support as it falls.

Resistances are levels where the price tend to find resistance as it rises. So, exit before the trend reverse.