Crude oil rises on upbeat demand outlook and China stimulus focus

With that in mind, we continue to forecast a rangebound market in the coming months, until the direction of key economies, including China and the US becomes clearer. The bottom of that range increasingly looks like having been established below $72 in Brent where three consecutive selling attempts have been rejected, potentially highlighting a concern that lower prices may trigger another production response from OPEC.

Speculators, such as hedge funds and CTAs responded to the Saudi production cut and subsequent 3% rally in the week to May 6 by raising their WTI and Brent combined crude oil long by the most in nine weeks. The 30k contract increase to 301.5k, a six-week high, was primarily driven by fresh longs in Brent and short covering in WTI. Overall, the net long remains well below the pre-banking crisis peak at 491k contracts, and it highlights a market suffering from loss of momentum amid global growth worries.

Ahead of today’s FOMC meeting, the oil market will watch out for any surprises in EIA’s weekly crude and fuel stock report. Data from the American Petroleum Institute released last night points to an across the board rise in oil and fuel stocks between one and two million barrels. Apart from the headline numbers, the market will also pay some attention to production which recently reached an April 2020 high and crude oil exports following a near 50% in the previous week. In addition, refinery demand will also be watched after runs reached 95.8% of capacity and highest since August 2019.

OPEC’s focus on supply management will likely enforce the view of a soft floor under the market, currently around $72 in Brent as mentioned, while an upside break seems equally unlikely as long the focus remains on a weakening economic outlook. From a technical standpoint, $80 area in Brent will likely offer a great deal of resistance and funds positioned for additional weakness are unlikely to change their negative price view until we see the return of an 8-handle.