WTI fades API inventory-induced corrective bounce below $81.00 on China woes, firmer US Dollar

• WTI retreats towards weekly low as fears about China join upbeat US Dollar.
• Downbeat China data, PBoC rate cut underpin concerns about likely reduction in energy demand from the world’s biggest industrial player.
• API Crude Oil Stock marked surprise draw and offered a corrective bounce.
• Fed Minutes, EIA Crude Oil Stocks Change eyed for clear directions.

WTI crude oil drops back to $80.50 as it fails to defend late Tuesday’s corrective bounce amid early Wednesday in Asia. In doing so, the black gold resumes the one-week-old bearish trend amid the risk-off mood and the firmer US Dollar, especially when the world’s biggest Oil customer China flashes negative signals.

As per the latest Weekly Crude Oil Stock from the American Petroleum Institute (API), the oil inventories dropped by 6.195 million barrels during the week ended on August 11 versus the previous addition of 4.067 million barrels.

On the other hand, the People’s Bank of China (PBOC), surprised markets by lowering the one-year Medium-term Lending Facility (MLF) rate to 2.50% from 2.65% previous, as well as by cutting the Reverse Repo Rate to 1.8% from 1.9% previously. The same joined China’s downbeat July Retail Sales that rose 2.5% YoY vs. 4.8% expected and 3.1% previous, as well as the Industrial Production that came in at 3.7% YoY vs. 4.5% estimated and 4.4% prior, to flag the fears of easing energy demand from the Dragon Nation.

It’s worth noting, however, that China State Bureau Spokesperson ruled out deflation views for China by saying, per Reuters, “There is no deflation in China,” as well as adding that there will be no deflation in the future. The Diplomat also accepted the challenges the economic recovery faces and conveyed expectations that China's economy to maintain steady operations in the second half of the year.

Elsewhere, the US Dollar Index (DXY) regained upside momentum after an initial pullback from the monthly high as the risk-aversion joined upbeat US Retail Sales. That said, Analysts at the global rating agency Fitch Ratings told CNBC on Tuesday that the agency could downgrade several big lenders, including JPMorgan, as reported by Reuters. The same bolstered the risk-off mood as Wall Street opened, which in turn pared the US Dollar’s initial losses and allowed it to regain upside momentum targeting the monthly high, marked earlier in the week.

Talking about the US data, the US Retail Sales for July contrasted with the downbeat US NY Empire State Manufacturing Index for August but managed to strengthen the US Dollar amid the downbeat risk profile. Elsewhere, Minneapolis Federal Reserve President Neel Kashkari ruled out talks of policy pivot by citing hot inflation and the uncertainty about the Fed’s progress in taming the same. The policymaker also said that he is not ready to say that the Fed is done raising rates, per Reuters.

Against this backdrop, Wall Street closed in the red and the US 10-year Treasury bond yields refreshed the yearly high.

Moving on, China’s House Price Index for July and the US housing data, as well as the Industrial Production may entertain the WTI traders ahead of the weekly US Oil inventory data from the US Energy Information Administration (EIA) and the Fed Minutes.

Technical analysis

A clear downside break of a seven-week-old rising support line, now resistance near $83.90, keeps the WTI crude oil bears hopeful of testing the 200-DMA support of around $76.20, with the $80.00 round figure acting as immediate support.