WTI looks for a firm direction around $41 after snapping two-day winning streak

• WTI fades upside momentum from $40.69 but remains positive for the third day in the week.
• Risk reset confronts OPEC fears of the inventory overhang, easing output cut.
• Baker Hughes US Oil Rig Count, US dollar moves will be the key.

WTI eases from the intraday high of $41.01 to $40.96 as Tokyo opens for trading on Friday. The black gold reversed from the highest in three weeks the previous day.  Though, sellers seem unconvinced amid a lack of major catalysts and a pullback in the market’s risk-tone sentiment.

China’s Global Times recently reiterated optimism surrounding the second-quarter GDP, up 11.5% on QoQ, while showing readiness to combat the UK’s ban over Huawei. The dragon nation’s passage of the Hong Kong security law made it an enemy of many western countries. However, Beijing refrains from stepping back and keeps the fears of a full-blown tussle on the table.

The resulted risk-off sentiment also takes clues from mixed data and the Organization of the Petroleum Exporting Countries (OPEC) members’ expectations of further load on the inventory side. Reuters recently conveyed the news that the OPEC fears its record oil cuts will fail to rebalance the market and solve the worst glut in history if a second wave of the COVID-19 pandemic undermines an economic recovery later this year. The global oil producers, led by OPEC and Russia announced an easing of the previous output cut of nearly 10 million barrels a day by two million barrels a day.

Other than the risk catalysts and OPEC, a lack of unidirectional data from the key economies like China, the US and the UK also challenge the oil buyers. However, the recent news that some of the local lockdown measures in Leicester are lifted by the UK Health Secretary Matt Hancock offered a ray of hope to the traders. Earlier during the week, expectations of the coronavirus (COVID-19) vaccine triggered the risk-on sentiment despite the on-going surge in the pandemic numbers.

Considering the lack of major data, oil trades may witness a dull day ahead of the weekly Baker Hughes US Oil Rig Count data, prior 181. However, the preliminary readings of the US Michigan Consumer Sentiment Index for July, expected 79.00 versus 78.1 prior, could offer intermediate moves.

Technical analysis

In addition to the June month’s top of $41.65, the recent high near $41.50 also challenges the bulls trying to revisit February month low around $44.00.