Risk Assets Rally On US/China Trade Deal Optimism

Crude oil traded up to fresh 2019 high at the start of this week’s session. The move was linked to demand fuelled by optimism around the ongoing US/China trade talks.

Given that China is the largest global consumer of oil, any positive input for the Chinese economy tends to translate into higher oil prices.

Despite the initial rally, however, oil came off the high of the week as the latest Chinese economic data was disappointing.

Vehicle sales went down by 15.8% in January year over year. This extended the bearish trend which began last year when China recorded its first ever annual vehicle sales decline.

Chinese Oil Demand to Peak?

Vehicle sales are now down for their seventh straight month, reflecting the negative impact of trade war uncertainty. This data strengthens the view that oil demand from the Chinese auto sector is likely to peak in the coming years.

However, for now, it seems that price is remaining supported as traders prefer to focus on the OPEC supply cuts which are currently active.

Last week, Saudi Arabia, the largest producer in OPEC, said that it plans to further reduce its output over March. This will be done in a bid to help prices further recover from the roughly 40% decline they suffered late last year.

Technical Perspective

usa oil

The recovery rally in oil over the last four months has seen price moving within a rising wedge formation. This highlights a lack of momentum and the potential for a reversal and continuation of the bearish move.

Price is currently hemmed in under the upper trend line of the pattern. This is just below the next structural resistance level of 58.03 which bulls will need to see broken to remove the risk of a reversal lower here.

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About the Author
“John Benjamin Resident Analyst at Orbex. John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.” [space height="10"] At Orbex, we are dedicated to serving our clients responsibly with the latest innovations in forex tools and resources to assist you in trading. Please Director at Visit our site for more details.

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