Crude Clears $60 with Momentum Ahead of China Talks

WTI Crude Oil Futures (June Future)

Yesterday’s Settlement: 59.91, Down +1.84 [+3.17%]

WTI Crude Oil futures rallied yesterday on trade optimism as weekend talks between Bessent and Chinese officials loom. Globally, markets traded risk-on yesterday as the announcement of trade talks and the easing of US Chip export restrictions helped buoy markets.

Meanwhile, the bullish catalysts we’ve highlighted this week continued to underpin markets as additional risk-premia was tacked onto price.

Today, Crude Oil is up +1.27 [+2.09%] to 61.16

Markets are once again trading risk-on this morning, heading into China trade talks, taking crude oil higher. The Dollar is trading weaker, which is also adding some support.

This morning, the US sanctioned a Chinese oil refiner alongside related trading and shipping companies for purchasing Iranian crude. The secondary sanctions on Iran are an important catalyst to remember as those barrels become less and less available.

Summary & Bias

Bias Summary from May 5th – 6th:

The bearish catalyst that has kept us sidelined has now been realized. As we turn our analysis forward, the environment is chalked with bullish potential catalysts. Because of this, we shifted our bias to Neutral / Bullish the morning of May 5th on the Sunday night ~4% gap lower in futures.

On paper, the forward-looking balance sheet looks oversupplied with accelerated OPEC hikes against a weaker demand outlook with the global economic slowdown we’re currently experiencing.

This will be the bear case, and it’s a valid case, but it uses somewhat lazy math. If you back out Iranian barrels, lower US production growth, and back out some Venezuelan barrels, the picture looks much different.

When you add some risk-premia for potential Russian sanctions and an escalation of the Middle Eastern conflict, you get to our bull case of the mid-60s level.

We can now add improving US-China dialogue to the potentially bullish catalyst list. The top end of our medium-term outlook is $65, and we like prudent profit taking around $62.50.

Technical Analysis:

Futures settled above key support yesterday and are trading up above the $60 level this morning. The June contract is trading into previously key support around the 61.05-61.83** level this morning and some profit taking and position shaving is prudent.

Since “liberation day”, traders have largely taken down risk on Friday’s as we head into the weekend. This could be the case today, but with Chinese talks this weekend, there’s a chance more optimism gets priced into global markets today.

There are still legitimate and institutionally popular theses to be bearish on Crude. Selling pressure will likely be apparent above $60. Futures may need to churn through some serious volume to break out above that mark. It’s important to remember that we are contrarians on the bull thesis here. The path upwards may not be smooth.