WTI looking to recover ahead of inventories data, FOMC minutes, and Powell speech

The selloff in oil has continued this week as the perception of easing tensions in the Middle East coupled with softer demand has weighed on prices. US crude (WTI) has dropped over 8% in the last week and is now hovering just above the $74 mark after peeking above $80 per barrel last Monday. 

US Crude (WTI) daily chart

_{Past performance is not a reliable indicator of future results.}

Weak economic data in China has weighed on demand expectations following on from the recession scare in US markets earlier this month after the unemployment rate ticked up unexpectedly. Inventories data has been closely looked at as a gauge of the health of the oil market, with a build-up in inventories often seen as negative factor affecting price. Tuesday’s API Weekly Crude Oil Stock data showed a 347-thousand-barrel build-up when forecasts had been predicting a drawdown of 2.8 million barrels. Later today the official crude oil inventories will be released, with analysts expecting a drawdown of 2 million barrels last week. A smaller drawdown or even an increase could see oil prices drop further, whilst a bigger drawdown could reinforce the bullish reversal attempt started earlier today. 

Another important event on the calendar today will be the FOMC minutes of the July meeting that saw rates kept unchanged. Investors believe the Federal Reserve could have made a mistake by not cutting rates at that meeting as the economic data is signalling a slowing economy. The rationale behind the decision to keep rates unchanged will be heavily scrutinized when the minutes are released later today. If investors believe that the FOMC members could continue to support keeping rates at current levels – although highly unlikely – at the September meeting then we could see risk sentiment take a dive once again, likely causing oil prices to retrace further.

Following on from this, on Friday we’ll see Fed Chairman Jerome Powell take centre stage at the Jackson Hole Symposium and no doubt investors will be paying close attention to what he has to say. Markets expect him to confirm a rate cut in September, the question now is the size of said cut. Current pricing leans in favour of 25 bps but there are still some that expect the cut to be 50 bps in order to catch up with the missed opportunity in the July meeting. We’re likely to see heightened volatility following Powell’s speech, especially if he is seen to give further guidance on policy. The more dovish traders view Powell’s stance, the more likely it is that oil could recover some ground. 

Technically, the pullback seems to have exhausted some of the momentum with support coming in at $73.60 on Tuesday. That said, the bias remains tilted slightly lower as the RSI remains below 50 and the moving averages are converging to the downside. Buyers will likely find ample resistance in the case of a recovery with the 100-day SMA having halted the bullish drive just above $80 early last week. The indicator is currently placed around $79.73.