There’s been a lot to absorb for oil traders over the last week, some of which have created more questions than answers. The trade data from China was obviously another blow as it pointed to weakening global demand, as has become the norm from manufacturing and trade data around the world recently.
But at the same time, the country is finally navigating away from zero-COVID, a policy that’s often this year been a counter-force against the slow re-introduction of OPEC+ crude and the war in Ukraine. Now, with the balance in the market seemingly tilted towards oversupply, the reopening of China could prove supportive of the crude price.
Ultimately, the movements in oil markets depend on multiple moving parts which is why we’re seeing so much volatility but the trend has been negative for a number of weeks. The question is how much weaker it will get before OPEC+ steps in once more. Of course, the Biden administration has indicated it could start purchasing crude for the SPR when the price falls to $70 a barrel, which could provide at least a temporary floor.
An Eye on PPI
Gold traders clearly already have an eye on Friday’s US PPI report after the jobs report setback. While a good PPI number won’t heal all wounds, it could provide further evidence that inflation is cooling and allow for a less hawkish Fed next week.
The yellow metal peaked around $1,810 last week and is now consolidating in the $1,760-1,780 range. There’s clearly still plenty of bullish appetite there but there will be setbacks along the way, as we’re seeing now. The PPI could potentially be another. A break below $1,760 could see a bigger correction, with the next big level of support coming around $1,730 which has been very significant in recent months.