Oil loses recovery momentum

The price of crude oil was down by about 3% so far this week, having encountered sellers' resistance at $63 for WTI. A week earlier, the resistance was at $64/bbl.

In early April, oil collapsed due to fears of a global slowdown due to tariffs (less demand) and OPEC+'s intention to raise production (more supply). However, over the last three weeks, we have seen a smooth recovery trend, which has allowed about half of the initial decline to be recovered.

Last week's US data was also on the sellers' side. Commercial inventories have risen in 11 of the last 13 weeks, adding a cumulative 31.4 million barrels. Strategic stocks also rose over that time, albeit by a rather modest 2.7 million barrels.

Interestingly, drilling activity has picked up, as the number of oil rigs has recovered to 483 from 480 a fortnight ago in the last couple of weeks.

That said, so far, production has stagnated at 13.5 million bpd. These swings are near record highs, but there has been no upward movement. While the data changes are not overly dramatic, there are still more factors in favour of a lower oil price as the initial rebound fades.

In our view, the status quo is working against oil now, as the already imposed tariffs and the degree of uncertainty are eating away at confidence and therefore putting pressure on futures.

The longer-term technical picture shows the recovery momentum depleting on the approach to the former strong support line, which promises to make it an equally strong resistance. This picture suggests that without a breakthrough in tariff negotiations, there is a greater chance that oil will go down further, and the latest recovery will only whet the bears' appetite.