The oil price pulls back below the $60 level - has the correction turned into a full-blown downtrend?
Crude oil lost 2.21% on Wednesday, breaking decisively below the $60 level and accelerating its short-term downtrend. Today it's continuing to weaken, falling another 1.3% after rebounding from a low of $56.40 as markets digest disappointing economic data including the U.S. GDP contraction in the first quarter.
For oil markets specifically, these developments are worth monitoring:
- Yesterday's U.S. crude inventory data showed a decrease of 2.7 million barrels versus expected -0.6 million, but crude oil continued selling off after initially reacting positively to that data.
- Saudi Arabia, the world's largest crude exporter, is reportedly unwilling to prop up the oil market with supply cuts and can manage a prolonged period of low prices.
- Several OPEC+ members will suggest the group accelerate output hikes in June for a second consecutive month, with a meeting scheduled for May 5th to decide the June output plan.
- Markets remain highly sensitive to news, with oil trading largely following broader market sentiment.
Oil: Retracing More of Its Recent Rebound
Crude oil extends its short-term downtrend. The break below $60 is particularly significant. No clear positive signals are evident, and the accelerated decline suggests increased selling pressure. However, the closer the market gets to its previous low, the more likely it is to rebound or reverse its short-term downtrend.
Inventories: Bullish Data Largely Ignored
Yesterday's inventory report was actually bullish, showing a decrease of 2.7 million barrels versus the expected 0.6 million barrel decrease. The market's negative reaction to what should have been supportive data suggests underlying bearish sentiment is dominating price action, with economic concerns and potential OPEC+ supply increases outweighing the inventory drawdown.
Conclusion
Crude oil continues its decline, breaking decisively below the psychologically important $60 level. The commodity showed weakness even in the face of what would normally be bullish inventory data.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- Today's 1.3% decline extends Wednesday's 2.21% loss, confirming a short-term downtrend.
- Weak economic data, including U.S. GDP contraction in the first quarter, raise serious concerns about future demand.
- Potential OPEC+ supply increases at next week's meeting pose substantial downside risks.
- U.S.-China trade tensions are directly impacting oil demand forecasts.
- In my opinion, the short-term outlook is neutral.
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Thank you.
Paul Rejczak,
Stock Trading Strategist