Is crude oil forming a bottom after its recent rally, or will the bearish momentum resume amid ongoing trade tensions and market uncertainty?
Crude oil surged 4.65% yesterday, rallying from a new low of $55.12 after President Trump announced a delay on most of his tariffs. However, today's trading has seen a reversal of some of those gains, with prices pulling back by 3.7% - creating more uncertainty and raising questions about whether we're seeing a new uptrend or merely a sharp correction before another leg lower.
For oil markets specifically, these developments are bearish:
- The market is experiencing exceptional volatility due to the ongoing trade tensions between the U.S. and China.
- Trump's reversal on tariffs for most countries (though notably not China) provided temporary relief.
- Today's CPI data came in lower than expected at -0.1% month over month, potentially signaling weakening demand.
- Growing fears of a global recession that could significantly reduce oil demand.
Oil: Remaining Below Long-Term Lows
The recent price action shows crude oil bouncing sharply from its new long-term lows, but the sustainability of this move remains questionable. Yesterday's rally retraced a large part of the recent sell-off, but today's pullback suggests traders remain cautious about the overall direction.
Key technical levels to watch include the recent low around $55 and resistance around the $65-66 range, which previously acted as support.
Inventories: Slightly Bearish
Yesterday's inventory data showed a build of 2.6 million barrels, slightly higher than expected. However, the market largely shrugged off this data as the Trump tariff news dominated sentiment. This suggests fundamentals are temporarily taking a back seat to tariff turmoil.
Conclusion
Crude oil's technical picture has improved following yesterday's strong rally, but today's pullback raises questions about the sustainability of the move. The volatile environment created by conflicting tariff news has resulted in a highly uncertain market conditions.
With prices attempting to recover from multi-year lows, we may see continued volatility.
For now, my short-term outlook is neutral.
Here’s the breakdown:
- Crude oil staged an impressive 4.65% rally from the $55.12 low but has given back some gains with today's over 3.5% pullback.
- The medium-term outlook appears bearish following technical damage, and unclear amid conflicting signals from tariff developments.
- In my opinion, the short-term outlook is neutral.
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Paul Rejczak,
Stock Trading Strategist