WTI Crude Oil Futures (March)
Yesterday’s Settlement: 70.61, down -0.42 [-0.59%]
Trade tensions continued to weigh on Crude Oil yesterday. The tariffs on China have traders and market participants worried that a glut could develop should economic activity slow down.
While China can and will source Crude oil from other countries, trade wars throw a wrench in the gears of global economic activity. When economic activity slows, Crude Oil demand does as well. The risks for U.S.-based WTI Crude oil futures are twofold: The market will face reduced Chinese buying and a potential overall economic activity slowdown.
The amplified sanctions on Iran are moving forward, and this will take barrels off the market as the grip tightens. Traders are digesting the bullishness of Iran sanctions vs the bearishness of China tensions. Headlines will continue to drive this market, and amplified volatility is expected.
Today, futures are higher by +0.40 [+0.57%] to 71.01
This morning’s Non-Farm Payrolls Report printed a robust figure. In January, the Bureau of Labor Statistics made significant revisions to the payrolls data set that can skew this print in either direction. This month’s big adjustment was to the U.S.’s population estimate and the overall labor force. 2 Million individuals were added to the labor force.
The wonky NFP print has whipsawed global markets today, sending bonds sharply lower before reversing almost instantly. Markets are mainly trading risk-on as U.S. yields are moving sharply higher. The Dollar has been moving in lockstep with rates, and traders should be alert to some dollar strength coming through at the U.S. Open.
Private Chinese refiners have reportedly slashed operating rates to levels not seen since the onset of the COVID-19 pandemic. Many of these private refiners had been relying on cheaper Russian crude, which is now sanctioned.
China’s retaliatory tariffs will take effect on Monday. If Xi and Trump speak either before or during the weekend, the markets will likely interpret this as bullish. Traders should continue to expect amplified volatility and unpredictable swings as headlines dominate trade flows.
Technical Analysis:
Our key for yesterday was a settlement above our rare four-star level of 71.25-71.63*. This did not happen. But, on the bright side, our three-star level of 70.53-70.64 held stout.
We remain neutral in our Bias but will note again that this market faces considerable fundamental headwinds. It needs a catalyst to stifle this bearish momentum, and the only readily available prospect is likely some positive news regarding U.S.-China relations.
We continue to attack these markets from a risk-first mindset, relying on smaller position sizes, tactical trading with shorter time-frames, and opportunistic decision-making. In this environment, the market-moving headlines are inevitable. We’re trying to be on our front foot, ready to attack when these opportunities arise, rather than forced into being defensive and having to manage risk around a larger core position.
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