Crude Oil Is Holding Its Breath As China Fears COVID Again

Please note that due to market volatility, some of the key levels may have already been reached and scenarios played out.

Trading positions

WTI Crude Oil No position currently justified on a risk-to-reward point of view.
Natural Gas [NGK22] Long around the $5.983-6.287 support area (yellow band) with Stop at $5.505 (monthly swing low) and targets at $6.954 & $7.365 – PULLED!

Henry Hub Natural Gas (NGK22) Futures (May contract, daily chart)

Regarding our current trading projection on Natural Gas, we were very close to get our trade executed yesterday, however, given that the rebound happened a hair higher, we did not rush to get in as this would have shifted our risk/reward ratio to a higher risk. So, for now I just suggest pulling that order as firstly, that rebound has already reached target #1 and secondly, with the roll-over onto the next maturity contract (next calendar month to be June, NGM2022), things are going to become a bit messier on this future contract. Thus, order cancelled for now.

Crude oil prices remained lower on Tuesday, after significant losses suffered the day before. They are still weighed down by fears of a general lockdown in Beijing, the capital of China, as well as in Shanghai, thus risking a demand reduction for black gold.

The concern also affects industrial metals, of which China is a major consumer. They recorded substantial price drops on the London Metal Exchange (LME) on Monday. As per the below chart, the LMEX, an index that incorporates the prices of aluminium, copper, lead, nickel, tin, and zinc traded on the LME, posted 4,864.9 points on Monday, erasing all its gains from March and April:

London Metal Exchange (LMEX), TradingEconomics.com

The implementation of China’s zero-COVID policy seems to be heavily affecting Chinese demand for crude, which is already down 1.2 million barrels per day due to the severe health restrictions (strict lockdowns) put in place in Shanghai. According to Bloomberg, Chinese demand for certain types of fuel (gasoline, diesel, and kerosene for aviation) has already fallen by 20% in April 2022 compared to a year earlier.

In addition, the rise of the US dollar represents another factor currently weighing on crude oil prices, since the greenback is at its 25-month high against the euro.

Dollar Currency Index (DXY), daily chart TradingView.com

On the West Texas Intermediate (WTI) benchmark, we have switched to the new calendar month, which is the June maturity contract, CLM2022. On the Brent benchmark, we will look at the BRNM2022.

WTI Crude Oil (CLM22) Futures (June contract, daily chart)