Oil price gaps down on global trade fears, US Dollar cushions fall

• Oil price opens the week lower on concerns global trade may be impacted by geopolitical wrangling at G7 summit. 
• China provokes the United States by banning US-manufactured micro chips. 
• Oil recovers after US Dollar weakens on continued debt-ceiling uncertainty as talks reopen in Washington. 

Oil price gaps lower at the start of the week on concerns global growth may suffer, after the world’s leading economies antagonized China at the G7 summit in Hiroshima. World leaders discuss ‘de-risking’, or weaning themselves off an over-reliance on Chinese imports at the summit. Washington and Beijing exchanged harsh words as China banned imported chips from US manufacturer Micron, after failing to pass a security test. Support from a weakening US Dollar, however, lifts Crude Oil back up to Friday’s close after the weak open. 

At the time of writing, WTI Oil is trading in the upper $71s and Brent Crude Oil in the mid $75s. 

Oil news and market movers 

• Oil price falls on global growth and trade concerns after major economies clash at the G7 summit in Japan. 
• Geopolitics polarizes the G7 into two competing camps – China and Russia, who are seen as threats to world prosperity and peace – and the rest, led by the United States. 
• China provokes the US by banning imports of micro chips from US manufacturer Micron, citing security risks.  
• Oil price subsequently recovers, however, supported by a weaker US Dollar. 
• The Greenback remains under pressure as the debt-ceiling impasse trundles on. 

Crude Oil Technical Analysis: Downtrend showing signs of ending

WTI Oil is in a long-term downtrend, making successive lower lows. Given the old adage that the trend is your friend, this favors short positions over long positions. WTI Oil is trading below all the major daily Simple Moving Averages (SMA) and all the weekly SMAs except the 200-week which is at $66.89. 

WTI US Oil: Daily Chart

A break below the year-to-date (YTD) lows of $64.31 would be required to reignite the downtrend, with the next target at around $62.00 where trough lows from 2021 will come into play, followed by support at $57.50.

Despite the bearish trend dominating, there are signs pointing to a possible conclusion. The mild bullish convergence between price and the Relative Strength Index (RSI) at the March and May 2023 lows – with price making a lower low in May that is not matched by a lower low in RSI – is a sign that bearish pressure is easing. 

The long hammer Japanese candlestick pattern that formed at the May 4 (and year-to-date) lows is a sign that it could be a key strategic bottom. 

Oil price bulls, however, would need to break above the $76.85 lower high of April 28 to bring the dominant bear trend into doubt.