Crude oil prices are currently trading near $64.56, sharply up from last week's low of $61.56 registered on Friday. Positive economic data has increased economic optimism and is likely to support energy demand in major countries. However, the crude oil rally is likely to be capped due to the possible easing of sanctions on Iran which will add supply to the global oil market once negotiation between the US and Iran takes final shape.
On Thursday, Iranian President Hassan Rouhani said that world powers had taken a "major step" to restore the 2015 nuclear deal and accept that sanctions on Iran would be lifted. However, the future of talks to bring the US back into the Iran nuclear deal is under threat after the UN nuclear watchdog was unable to reach an expected agreement on how to continue to inspect Iran’s nuclear sites.
Crude oil prices found support on the back of positive economic data released last week. The US May Markit manufacturing PMI unexpectedly rose +1.0 to 61.5, stronger than expectations of a decline to 60.2 and the fastest pace of expansion since the data series began in 2018.
Also, the Eurozone May Markit manufacturing PMI fell -0.1 to 62.8, stronger than expectations of 62.5. In addition, the UK May Markit manufacturing PMI unexpectedly rose +5.2 to 66.1, stronger than expectations of a decline to 60.8. The increase of manufacturing activity in the US, UK, and Eurozone is supportive of energy demand.
However, crude oil prices are likely to face demand losses in India due to rising Covid-19 cases and many prominent cities are extending lockdown till the first week of June. The overall global Covid-19 caseload has topped 166.9 million, while the deaths have surged to more than 3.45 million, according to the Johns Hopkins University. Sales of road transport fuels in India during May 1-15 dropped -20% m/m and -28% from the same period in 2019. Average gasoline sales in India during May 1-15 fell to 52,300 MT, the lowest in a year, and sales of diesel in India dropped to a 7-month low of 147,300 MT a day during May 1-15.
Meanwhile, energy demand losses of India are getting compensated due to recovery in Covid-19 condition in the US. As per Bloomberg and John Hopkins University data report, The US reported just over 18,700 new cases on Saturday much are lower than the daily average.
Also, the strength in crude oil demand in China is bullish for prices. China processed a record 232 MMT of crude from Jan-April, up +12% from the same period in 2019 prior to the pandemic.
Baker Hughes reported Friday that active US oil rigs rose by +4 rigs in the week ended May 21 which is well above August's 15-year low of 172 rigs. An increase in Oil rigs is an early indication of future oil supply in the US.
CFTC Commitments of Traders report in the week ended May 18 suggests that net long for crude oil futures sank by 20,614 contracts to 475,947 for the week. Speculative long positions fell by 37,588 contracts, while shorts were down by 16,974 contracts.
WTI Crude oil prices are likely to trade firms while above the key support level of 50 days EMA of $62.66 and 100 days EMA $59.29 while it may face stiff resistance near $66.54 and $69.50