WTI licks its wounds near $77.50 amid fresh challenges to Oil supplies from Russia

• WTI remains defensive after posting the biggest daily loss in two weeks.
• Ukrainian drones renew fresh geopolitical fears by attacking deep inside Russia.
• Moscow rejects supplying Oil under the G7 price.
• Firmer US Dollar adds strength to the bearish bias, China-linked optimism favor commodity bulls.

WTI crude oil consolidates the biggest daily loss in two weeks by making rounds to $77.50 early Wednesday. In doing so, the black gold also justifies the optimism surrounding China and supply-crunch fears emanating from China.

Recently, the New York Times (NYT) released a piece of news suggesting Ukrainian drones attacked military bases hundreds of miles inside Russia and escalated war. The same renews the geopolitical tension which previously propelled the black gold.

On the same line, Reuters mentioned that the Group of Seven (G7) price cap on Russian seaborne oil came into force on Monday as the West tries to limit Moscow’s ability to finance its war in Ukraine, but Russia has said it will not abide by the measure even if it has to cut production.

It should be noted that firmer US data renewed hawkish expectations from the US Federal Reserve (Fed) and challenged the commodity buyers. That said, US ISM Services PMI rose to 56.5 in November versus 53.1 market forecast and 54.4 previous readings whereas the Factory Orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior. Further, S&P Global Composite PMI improved to 46.4 versus 46.3 initial estimations while the Services counterpart rose to 46.2 compared to 46.1 flash forecasts. On Friday, the US Nonfarm Payrolls (NFP) surprised markets by rising to 263K versus 200K expected and an upwardly revised prior of 284K while the Unemployment Rate matched market forecasts and prior readings of 3.7% for November.

Alternatively, optimism surrounding China’s economic growth, due to the latest easing of virus woes and re-opening appears to keep the WTI crude oil buyers hopeful. Reuters reported on Monday that China is on course to downgrade its management of COVID-19 from a top-level Category A infectious disease to a less strict Category B disease as early as January. The news came after Chinese President XI Jinping termed the previous jump in the virus cases as Omicron and mostly of mild nature. Furthermore, the OPEC+ verdict to defend the supply cuts also keeps the oil buyers positive.

Moving on, Oil traders should pay close attention to the geopolitical and Covid-linked headlines for clear directions. Also important will be the private inventory data from the American Petroleum Institute (API) for the week ended on December 02, prior 61.3.

Technical analysis

A U-turn from the 21-DMA hurdle, currently around $81.45, directs WTI bears toward April’s low near $76.10. However, further downside appears limited considering the quote’s latest bounce off $73.66.