Oil market: upside correction is unsustainable

OANDA:BCOUSD   Brent Crude Oil
The first trading day of the year was rather volatile across global markets including oil . Brent crude jumped aggressively after some consolidation earlier in the day, with the prices reached nearly two-week high of $56.50 but settled below the $55 figure ultimately.

The rally in the crude oil market was rather a correction though than a sustainable recovery as the fundamentals remain unconvincing and the global risks are still in play. Chinese data showed that the factory activity contracted for the first time in over two years in December and was the weakest since February 2016 at 49.7. The disappointing reading added to the ongoing worries over a slowing global economy as well as the US Markit manufacturing PMI for December which came in at the lowest since September 2017.

Moreover, it was reported that Russian crude oil production hit a post-Soviet record in 2018, while Iraq boosted oil exports in December. Against this backdrop, Brent will hardly be able to catch a bid further in the short term unless the global investor sentiment improves significantly.

Today, the oil market will further monitor the signals from stocks, while later in the day, traders will focus on the API data that could give some lift to prices should the report point to a contraction of crude oil stockpiles in the US.

Technically, Brent needs to settle firmly above the $53 figure in order to proceed with its correction. However, there is still a risk of profit-taking as the barrel continues to look attractive as a sell on rallies.