Crude Sinks on China & Oversupply Fears

Crude Breaks SupportCrude oil prices sank to fresh 5-month lows yesterday as a combination of concerns over the Chinese economy and excess supply in the oil market weighed on sentiment. News that Moody’s has downgraded its credit outlook on China to negative, along with a slew of Chinese corporates, has caused some pause in risk appetite this week.China DowngradeOil prices have come under fresh pressure as a result of the development with fears that Moody’s will soon action an official downgrade of China’s credit rating if conditions don’t improve. A fresh health-scare in China linked to the outbreak of a pneumonia-related virus is further worrying markets. With the economy already struggling, as per the recent trend lower in leading indicators, there are fears over the impact of any return to covid-like measures if the situation worsens.Oversupply ConcernsOversupply is another issue troubling oil traders currently. Despite recent news of OPEC+ agreeing to extend current production cuts through next year, traders remain concerned over supply levels in the market. Indeed, this week’s EIA report showed that while headline crude stores fell for the first  first time in a month, product fuel inventories surged higher. With traders sensing a slowing of the economy in the US and with production levels still at highs, oil prices remain prone to further downside near-term.US Data FocusLooking ahead, there might be some room for recovery if USD is heavily sold on the back of tomorrow’s jobs data. However, if USD continues higher on the back of the data, this will be firmly bearish for crude near-term.Technical ViewsCrudeThe sell off in crude this week has seen the market breaking down beneath the 72.61 level, extending the bear channel. Price is now fast approaching a test of the channel lows and the 66.79 level. With momentum studies bearish, focus remains on further downside for now with bulls needing to see a move back above 72.61 to alleviate near-term bearishness.