WTI drops more than 2% to test $ 70 on risk aversion, exiting US Gulf
- WTI is at risk of dropping $ 70 mark amid risk aversion over China’s Evergrande woes.
- Oil prices are also affected by expectations of a return of US Gulf oil production to the markets.
- Stronger US dollar to keep downside pressure intact ahead of oil supply reports.
After being rejected at $ 73, WTI (NYMEX futures) extended their losing streak in a third straight session on Monday.
WTI at the mercy of a sense of risk
As of this writing, WTI is losing nearly 2.50% on the day, attacking the $ 70 level, as a wave of risk engulfed financial markets amid concerns over a potential Chinese default. Evergrande.
Fears hanging over the ailing Chinese real estate developer have sparked fears of a global slowdown, which in turn are weighing on the outlook for demand for oil and its products.
Amid risk aversion and waning expectations from the Fed, the US dollar is hitting monthly highs, making the greenback-denominated WTI expensive for foreign buyers.
The increase in the number of US oil rigs and expectations of a return to US Gulf oil production after the two hurricanes have put further downward pressure on oil prices.
As of Friday, 23% of U.S. Gulf of Mexico crude production, or 422,078 barrels per day, remained closed, Reuters reported, citing the Bureau of Safety and Environmental Enforcement.
Attention now turns to the weekly US crude inventory data due to be released later in the week for further trading incentives.
However, the US Federal Reserve’s (Fed) monetary policy decision will be the main risk event this week for dollar transactions, which will ultimately impact WTI prices.
WTI technical levels
“In a case where WTI falls below $ 69.60, bearish momentum may aim for the monthly low around $ 67.00, also including a 50% Fibonacci retracement of the August to September rise. On the contrary, a downward sloping resistance line since last Wednesday, near $ 72.10, calls into question the recovery of WTI before the monthly peak around $ 72.90 ”, notes FXStreet analyst Anil Panchal.