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Energy Complex Trends Higher Despite Trade Tensions

Market Overview

The potential trade war between the US and China dominated price action last week and remains the focus for the coming sessions. Early trading this week has seen a rally in WTI despite the lingering threat. Comments from President Trump early Sunday morning took some of the pressure off commodities as he pointed to an amicable future between himself and Xi Jinping.

“President Xi and I will always be friends, no matter what happens with our dispute on trade. China will take down its Trade Barriers because it is the right thing to do. Taxes will become reciprocal & a deal will be made on Intellectual Property. Great future for both countries!” -President Trump

The president’s comments come just a few days after threatening additional tariffs on $100 billion of Chinese goods. China’s government maintained their resolute stance and said they were prepared for a fight. In light of these comments one thing is certain, the coming sessions will be volatile as we oscillate between risk-on and risk-off sentiment across the global markets.

Wednesday and Friday are days to watch this week as key US economic indicators are scheduled for release. Wednesday should prove to be a volatile day for equities and the US dollar with CPI headline numbers due at 8:30 am EST followed by the release of the FOMC meeting minutes at 2:00 pm EST. Forecasts for CPI are showing a 2.4% increase compared to the last release of 2.2%. A higher than expected number should be bullish for the dollar as traders speculate on additional rate hikes. On Friday, we’ll round out the week with sentiment indicators from the University of Michigan’s Survey of Consumers. Forecasts for consumer sentiment show a drop from 101.4 to 100.60. While this is a bearish expectation, the indicators forecasted position above 100 still points to an overall positive view of current economic situation.

Technical Analysis

WTI Futures

WTI continues trading within the bullish channel, but trade war concerns have pushed it toward the lower end of the range. The channel remains intact, so we’ll need to see additional risk-off sentiment before we push lower. Stochastics continue to point lower which suggest further technical selling. Buyers stepped in early on Marth 16th before Stochastics could break below 20.00 indicating aggressive buying. Price action remains volatile in this economic environment, so we must be mindful of any false signals generated by technical analysis. Typically, indicators fare best when signals originate near key levels of support and resistance.

ULSD Futures

ULSD is trading in the upper half of its bullish channel and is nearing resistance at $2.04. So far, ULSD has maintained its bullish bias in the face of rising international tension. If the current trend remains intact, price should push $2.04, but until that time, we are hesitant on the upside as the US-China tariffs unfold. To the downside, $1.99 is operating as key support. A break below this level would invalidate the current bullish channel. As with WTI, Stochastics is still pointing lower, which suggests further technical selling pressure.

RBOB Futures

RBOB technicals tell a similar story to ULSD and WTI. Price is currently working higher in a bullish channel with resistance at $2.05 and heavy resistance at $2.10. Trendline support near $1.9250 offers technical buying for bulls looking for another entry. A break below $1.85 would invalidate the current uptrend and should entice sellers to enter the market. Stochastics is pointing lower which is an indication of further technical selling.