Crude Oil Prices Fall as US-Iran Nuclear Talks, Stockpiles Eyed

Crude prices fell for a second day after reports of significant progress on a US-Iran nuclear deal API reported a 0.62-million-barrel rise in crude inventories for the week ending May 14th

WTI failed to breach a key resistance level at $ 66.50 and has likely entered a technical correction

Crude oil prices extended lower during Wednesday’s APAC trade after falling 1.56% a day ago. A Russian official said on Tuesday that US-Iran nuclear talks have made significant progress, sending oil prices sharply lower. Traders are worried about higher Iranian output if the two countries are moving closer to striking a deal. This may pave the way for removing some sanctions,including limiting Iran’s oil exports, imposed by the Trump administration.

Iranian crude oil exports have declined sharply since the US tightened sanctions in 2018, falling from over 2.2 million bpd to 0.088 million bpd in April 2021 (chart below). A full restoration of Iran’s output may add over 2 million bpd to global supply. This may disrupt a nuanced balance in the supply-demand relationship as OPEC+ moves towards lifting output caps to meet rising global demand.

Although challenges remain on the road to striking a nuclear deal, the appearance of constructive talks still spooked the oil market. WTI has surged over 36% this year, rendering it vulnerable to profit-taking near key chart resistance at $ 66.50. Lingering concerns about viral resurgence in some Asian economies, especially India, Japan and Taiwan, also cast a shadow over the outlook for energy demand.

Iran Crude Oil Total Exports – Past 5 Years

Meanwhile, the American Petroleum Institute (API) reported a 0.620-million-barrel build in crude stockpiles for the week ending May 14th, compared to a forecasted increase of 1.68 million barrels. In the prior week, inventories declined by 2.53 million barrels, underscoring rising fuel demand as economic recovery gathers pace.

Looking ahead, core inflation figures from the UK, Europe and Canada dominate the economic data docket alongside the FOMC minutes.

Traders are looking for clues about price levels and their implications for central banks’ monetary policy.

The Energy Information Administration (EIA) will report weekly inventories data later today. Markets anticipate a 2.00-million-barrel build in stockpiles. A larger-than-expected increase may serve to undermine crude oil prices, whereas a smaller one or a decline would likely do the reverse (chart below).

Meanwhile, the American Petroleum Institute (API) reported a 0.620-million-barrel build in crude stockpiles for the week ending May 14th, compared to a forecasted increase of 1.68 million barrels. In the prior week, inventories declined by 2.53 million barrels, underscoring rising fuel demand as economic recovery gathers pace.

Looking ahead, core inflation figures from the UK, Europe and Canada dominate the economic data docket alongside the FOMC minutes. Traders are looking for clues about price levels and their implications for central banks’ monetary policy.

The Energy Information Administration (EIA) will report weekly inventories data later today. Markets anticipate a 2.00-million- barrel build in stockpiles. A larger-than-expected increase may serve to undermine crude oil prices, whereas a smaller one or a decline would likely do the reverse.

Technically, WTI failed to breach above a key resistance level at 66.50 (the 200% Fibonacci extension) for a second time this month.

This may result in a “Double Top” chart pattern that is inherently bearish in nature. An immediate support level can be found at around $ 64.40 – the floor of the “Ascending Channel” as highlighted on the chart below.

Breaching below the “Ascending Channel” may signal a near-term trend-reversal and open the door for further losses with an eye on $ 62.19 (the 161.8% Fibonacci extension) for support. The MACD indicator has formed a bearish crossover, suggesting that near- term momentum is tilted to the downside.

WTI Crude Oil Price – Daily Chart

US Dollar May Rise if FOMC Minutes Reveal Inflation Debate

US DOLLAR, FOMC MINUTES, FED, USD/JPY – TALKING POINTS

US Dollar may rise if FOMC minutes reveal debate about inflation A risk-off backdrop may further aid USD as haven demand swells USD/JPY trying to resume upward momentum after support test

A relatively quiet offering on the European economic data docket seems likely to put minutes from April’s FOMC meeting into focus for financial markets. The release comes against the backdrop of back-to-back upside surprises on key price growth metrics alongside surging breakeven rates, which measure investors’ priced-in inflation expectations as implied in bond markets.

Most Fed officials have dismissed the uptick in prices as “transitory”, suggesting that it mostly reflects ultra-low readings 12 months ago registered amid the onset of the Covid-19 pandemic as the base for year-on-year calculations. They argue that as this base effect dissipates over time, inflation readings will retreat back to reasonable levels without threatening to overshoot the central bank’s target.

This may be a rosier assessment than reality allows. Frayed supply chains disrupted by uneven post-Covid reopening globally, a flood of policy stimulus unprecedented in its scale and the velocity of its deployment, legacy price premiums from the pre-Covid trade war and the unleashing of pent-up demand with spreading vaccination all warn that reflation may prove sticky.

US DOLLAR MAY RISE IF FOMC MINUTES REVEAL INFLATION DEBATE

Seeing policymakers acknowledge such a risk may be enough to spook financial markets. The Fed signaled as far back as August of last year that it was done expanding its stimulus toolkit. Not surprisingly, Treasury yields bottomed and anti-fiat gold prices topped just then. The pace of economic growth has subsequently surged along with inflation bets, so an unexpected dovish pivot seems all but totally ruled out.

On the other hand, it probably would not take much to rattle baseline forecasts from the hawkish side. The central bank has been so emphatically against even considering stimulus withdrawal in its public pronouncements that mere evidence of a conversation about drawing down policy support at last month’s conclave might be enough to drive yields higher and lift the US Dollar against its G10 FX peers.

A risk-off backdrop may prove complimentary. Shares swooned in Asia-Pacific trade, with regional bourses shedding close to 1 percent on average. European exchanges have picked up on the downbeat lead, gapping sharply lower at the open and tracking down 0.9 percent.

Bellwether S&P 500 futures hint at follow-through when Wall Street comes alive, which may be a boon for the safe-haven Greenback.

USD/JPY TECHNICAL ANALYSIS – UPTREND READY TO RESUME?

The US Dollar is attempting to push up from support guiding it higher against the Japanese Yen since late April. Breaching downward-sloping countertrend resistance set from the May 12 swing high looks likely to open the door for a retest of recent peaks in the 109.70-80 zone.

Establishing a foothold above that may set the stage for a run above the 110.00 figure to challenge the 2021 peak.

Alternatively, a reversal through rising trend line support puts the 108.34-41 inflection region back into focus. A daily close below that may clear a path through the 108.00 handle to the April 23 trough at 107.45.

Bitcoin, Litecoin Aim Higher After Cryptos Get Musked Over Weekend BITCOIN, LITECOIN, ELON MUSK, CRYPTOCURRENCY– TALKING POINTS

Crypto market recovering after Elon Musk tweets inject volatility over weekend Bitcoin may turn higher after bouncing from prior support turned resistance Litecoin maintains broader trend higher, bouncing from its 50-day SMA

Bitcoin is up against the ropes, now down more than 30% from its all-time high back in April when the cryptocurrency hit 64,895.22 before breaking below a key trendline. The asset has been no stranger to volatility, but at its lower mark since late February, some signs of panic have appeared given the size of its selloff.

The volatility in Bitcoin, which has cascaded to the broader crypto market, comes amid confusion surrounding tweets from Elon Musk. The Tesla CEO’s tweets have shown to have the remarkable ability to cause a big price swing in not only Bitcoin, but also the entire digital currency space. Mr. Musk stated Monday that Tesla has sold no Bitcoin, following up a weekend tweet that eluded his electric vehicle company sold its Bitcoin portfolio.

The question poised now, given the current fundamental backdrop – which seems to compose mainly Elon Musk’s tweets – is will dip buyers step in with force? Or, will we see a further extension lower? It’s important to remember that Bitcoin has made spectacular recoveries in the past, and a major recovery would likely be of little surprise.

BTC/USD TECHNICAL BREAKDOWN

The weekend selloff appears to have eased at a level of former resistance turned support. The volatile action since the April swing high also appears to have developed a downward channel after this week’s pivot higher confirmed the lower bound as support.

A break below the near-term support would likely see an extension lower, but the 200-day Simple Moving Average (SMA) along with the 161.8% Fib extension from the April low to May high may underpin prices. Alternatively, a move higher would aim for channel resistance,

with levels of possible resistance from the intermediate Fib levels.

BITCOIN DAILY CHART

LITECOIN TECHNICAL BREAKDOWN

Litecoin has seen a comparatively strong bounce today versus Bitcoin, with the crypto coin near 6% off its May low.

The 50-dSMA (blue line) has stepped back in to provide technical support, as seen late last month.

While LTC/USD still has a considerable gap to close to its recent swing high, a series of higher highs and lower lows from March remains in place, highlighting an overall bullish trend. That said, a move higher may see some gyration around its Fib levels.

LTC/USD DAILY CHART

Risk Warning:

Trading leveraged derivative products such as Foreign Exchange (Forex) and Contracts for Difference (CFDs) carries a high level of risk to your capital.

These derivative products, many of which are leveraged, may not be appropriate for all investors. The effect of leverage is that both gains and losses are magnified. The prices of leveraged derivative products may change to your disadvantage very quickly, it is possible for you to lose more than your invested capital and you may be required to make further payments.

Before deciding to invest in any financial product, you should carefully consider your investment objectives, trading knowledge and experience and affordability. You should only trade in Forex and CFDs if you have sufficient knowledge and experience of the risks involved in trading such products and if you are dealing with money that you can afford to lose. You should seek independent professional financial advice if you do not understand the risks involved.