WTI: Crude Oil Rallies After Positive Data from US & China Boosts Demand

WTI futures continued to rally today as we received positive economic data from the US and from China on Sunday as well as today.

Today’s ISM Manufacturing PMI showed that the economy is technically expanding by posting a number higher than 50. The release was also nearly 2 full points above forecasts at 50.3, adding bullish sentiment from higher expectations on demand.

Over the past 2 days China issued 3 sets of data, 2 of which beat expectations. More importantly all 3 were higher than the previous month, and 1 of them finally rose above the technical level for contraction.

In case you missed it, the numbers were for the following:

• Sunday – NBS Manufacturing PMI, expected 49.9, previous 49.1, Actual 50.80
• Sunday – NBS Non-Manufacturing, expected –, previous 51.4, Actual 53
• Monday – Caixin Manufacturing, expected 51, previous 50.9, Actual 51.1

Of the 3 indices, perhaps the most notable result is from the NBS Manufacturing PMI. Mainly due to the characteristic of this leading indicator coming from the Federation of Logistics & Purchasing. But also due to it going above 50, which means the economic activity recorded is expanding.

The WTI markets took this news particularly well. And the fact that China is the largest crude oil importer worldwide, adds to the importance of the data released. WTI contracts added $1.05 to its open for the price of a barrel of oil.

So, we have the world’s two largest economies looking like they may be able to sustain or increase crude oil demand as economic activity expands. We also have OPEC+ determined to maintain and extend production cutbacks.

Technical Views

From the day chart for WTI below we can see that the bull trend has taken over again, breaking through the $83.01 resistance (blue line). The next target for this bullish environment is the high set in October 2023, at $85.98 (green line).

The RSI is getting closer to the 70 level, a sustained bull market would bring the RSI over 70 and possible keep it higher. However, it’s also possible that we get a correction soon to retest the previous resistance at $83.01.

If the market makes a correction and fails to break below the blue line we should see the rally continue from there. Further highs should find strong resistance as we start getting further away from the Ichimoku cloud.

Not only would the RSI start showing overbought levels, but those levels would coincide with the gravity the Ichimoku cloud has on market price. Let’s say that market price is tied to the cloud by an elastic. The further price attempts to drift away from the cloud the more likely a swing reaction toward the cloud becomes possible.