Oil - Trade Tariff and Global Growth Problems
The week started with a gap higher on the Monday open to 75.99 in response to President Trump’s weekend announcement of trade tariffs on Canada and Mexico. This included import tariffs of 10% on energy from the two countries, impacting around 4.5 million barrels per day of oil supplies into the US.
The rally quickly reversed in the afternoon, as headlines surfaced that the start date for the trade tariffs, which was to be Tuesday February 4th, had been delayed by a month. This came after last minute calls between the leaders of Canada and Mexico with President Trump, led to concessions on border controls.
China was also the subject of weekend US trade tariffs on all goods of 10%, and as these went into effect on Tuesday, they retaliated with tariffs of their own on exports of commodities into the US. While their response was measured, the mere potential of a tit-for-tat trade war between the world’s two biggest economies was enough to send oil traders rushing to cut weak long positions, sending oil to fresh 2025 lows at 71.50.
The fear is a protracted trade war between the US and China could negatively impact global growth, which in turn could have severe implications for oil demand moving forward. That said, the situation between the two countries is fluid and prices will be sensitive to any headlines suggesting a pause for discussions between the US and China, or deeper escalation of the trade war.
Traders also need to be prepared for updates on potential US tariffs on the EU and any retaliatory response. All of which could influence oil prices.
The technical outlook is also critical.
Oil has seen a sharp sell-off since the 81.01 January 15th high, a move that that was only briefly interrupted at Monday’s opening, as threats of Trumps tariffs were digested by the market.
However, the early price strength proved short lived, and resistance offered by the Bollinger mid-average currently at 76.24 held, prompting fresh weakness, as tariffs were postponed, easing concerns.
The latest downside move pushed below potential 72.22 support, which is the 61.8% Fibonacci retracement of November 18th to January 15th strength. Much will depend on future price trends, but if this break is confirmed on a closing basis, it may lead to a more prolonged phase of price weakness.
Next Possible Support:
A previous correction low, where price weakness has been held and reversed to resume strength, can sometimes suggest the next support level during an extended price decline. If this is to be the case again, the next possible support could be 68.84, the December 20th session low, or, if this level was broken even possibly towards 67.06, which is the December 6th low.
What About Potential Resistance Levels?
Just because closing breaks of support offered by a 61.8% retracement have in the past prompted extended price declines, doesn’t mean it will do so again. As such, we must be aware of possible resistance levels.
If price strength is seen, closing defence of 74.26 resistance, which is equal to 61.8% of this week’s decline, may be watched. Successful closing breaks above this level while not an outright positive, could see a more extended phase of price strength towards resistance at 76.23, the declining Bollinger mid-average.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
The rally quickly reversed in the afternoon, as headlines surfaced that the start date for the trade tariffs, which was to be Tuesday February 4th, had been delayed by a month. This came after last minute calls between the leaders of Canada and Mexico with President Trump, led to concessions on border controls.
China was also the subject of weekend US trade tariffs on all goods of 10%, and as these went into effect on Tuesday, they retaliated with tariffs of their own on exports of commodities into the US. While their response was measured, the mere potential of a tit-for-tat trade war between the world’s two biggest economies was enough to send oil traders rushing to cut weak long positions, sending oil to fresh 2025 lows at 71.50.
The fear is a protracted trade war between the US and China could negatively impact global growth, which in turn could have severe implications for oil demand moving forward. That said, the situation between the two countries is fluid and prices will be sensitive to any headlines suggesting a pause for discussions between the US and China, or deeper escalation of the trade war.
Traders also need to be prepared for updates on potential US tariffs on the EU and any retaliatory response. All of which could influence oil prices.
The technical outlook is also critical.
Oil has seen a sharp sell-off since the 81.01 January 15th high, a move that that was only briefly interrupted at Monday’s opening, as threats of Trumps tariffs were digested by the market.
However, the early price strength proved short lived, and resistance offered by the Bollinger mid-average currently at 76.24 held, prompting fresh weakness, as tariffs were postponed, easing concerns.
The latest downside move pushed below potential 72.22 support, which is the 61.8% Fibonacci retracement of November 18th to January 15th strength. Much will depend on future price trends, but if this break is confirmed on a closing basis, it may lead to a more prolonged phase of price weakness.
Next Possible Support:
A previous correction low, where price weakness has been held and reversed to resume strength, can sometimes suggest the next support level during an extended price decline. If this is to be the case again, the next possible support could be 68.84, the December 20th session low, or, if this level was broken even possibly towards 67.06, which is the December 6th low.
What About Potential Resistance Levels?
Just because closing breaks of support offered by a 61.8% retracement have in the past prompted extended price declines, doesn’t mean it will do so again. As such, we must be aware of possible resistance levels.
If price strength is seen, closing defence of 74.26 resistance, which is equal to 61.8% of this week’s decline, may be watched. Successful closing breaks above this level while not an outright positive, could see a more extended phase of price strength towards resistance at 76.23, the declining Bollinger mid-average.
The material provided here has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Whilst it is not subject to any prohibition on dealing ahead of the dissemination of investment research, we will not seek to take any advantage before providing it to our clients.
Pepperstone doesn’t represent that the material provided here is accurate, current or complete, and therefore shouldn’t be relied upon as such. The information, whether from a third party or not, isn’t to be considered as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product or instrument; or to participate in any particular trading strategy. It does not take into account readers’ financial situation or investment objectives. We advise any readers of this content to seek their own advice. Without the approval of Pepperstone, reproduction or redistribution of this information isn’t permitted.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
Global risk Warning CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. Between 74-89% of retail investor accounts lose money when trading in CFDs. You should consider whether you understand how CFD
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.