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Chart of the day: Oil traders should be watching $50.70

After last week’s punchy 7.4% drop, taking price through and below, all short and long-term moving averages, we now eye a move into $50.70, which has been the obvious buy zone over the past 12 months.

XTIUSD daily chart

The last time we honed into these levels was in October and it proved to be the platform for crude to rally strongly into $65. What we’re seeing is obviously a demand shock and the idea that China, the world’s largest importer of oil, will struggle to maintain demand, notably for jet fuel, going forward, as the public refrains for overseas and domestic flights.

One suspects that a move into $50.70 will be met with solid buying support, with traders looking to support a commodity that is already technically oversold. Consider the probability that OPEC will presumably increase its verbal support of price at these levels, offering a view they are looking at production levels - although this is not really a supply issue.

While I expect some defence of $50.70, should it trade here, let's consider that a subsequent break of $50.70 would hold huge implications for financial markets more broadly. It’s not just equity markets that will struggle, but petrocurrencies (NOK, CAD, and USD to an extent) would underperform against the JPY and CHF, while inflation expectations will see interest rate cuts being more readily priced in. Keep oil on the radar.

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