WTI bounces from 21 & 50 DMAs, recovers back to $108 area despite choppy equities

• WTI has recovered back to the $108.00 area from an earlier test of its 21 and 50DMAs around $105.
• Crude oil is being supported amid strong global demand (China lockdown easing) and ongoing supply concerns.
• Oil is holding up well despite choppy equity market conditions.  

Having dipped as low as the $105 per barrel mark earlier in the session and found support at its 21 and 50-Day Moving Averages, front-month WTI futures have since rebounded to trade in the $108.00s. That still leaves prices slightly lower on the day, but will give the crude oil bulls confidence that there remains plenty of demand to buy WTI on dips.

Crude oil prices fell back sharply from earlier weekly highs in the $115s on Wednesday in tandem with a sharp deterioration in sentiment on Wall Street, which incidentally had its worst day since June 2020. Given that US equity indices appear to have picked up where they left off with things on Wednesday and are currently trading with fresh losses and eyeing a test of annual lows, traders would be forgiven for doubting WTI’s ability to recover back to recent highs on Wednesday.

Triggering the decline on Wall Street on Wednesday was more downbeat earnings from big US retailers (on Wednesday it was Target’s turn), which demonstrated that inflation is really starting to bite the consumer, raising concerns about the US economic outlook at a time when the Fed is moving to rapidly raise interest rates to tackle inflation. That’s a toxic combination for stocks, and as a risk-sensitive assets, weighed heavily on crude oil too.

However, crude oil has its own positive fundamentals to fall back on that are, at the moment, keeping WTI supported well above the $100 mark. Weekly crude oil inventory data on Wednesday showed a surprisingly large drawdown and US refiners ramping up output to keep up with rising US and global demand. The report revealed that refiners on the East and Gulf Coasts were running at 95% capacity, the highest possible run rate.

Meanwhile, in China, Shanghai is on course to see its lockdown restrictions eased from 1 June, spurring hopes for a recovery in crude oil demand there. In terms of supply-side dynamics, fears about Russian output with the EU expected to soon agree on some sort of Russian oil import ban linger whilst many smaller OPEC nations struggle to raise output in line with production quota targets.