Commodity investing: Oil and Gas Technical Analysis Post PBoC Rate Cuts

The recent interest rate cut by the People's Bank of China (PBoC) have significant implications for the oil and natural gas markets. By lowering the one-year Loan Prime Rate to 3.1% and the five-year rate to 3.60%, the PBoC aims to stimulate economic growth and revitalize the struggling real estate sector.

Key Points:

1. WTI crude oil (CL) rebounds from the support level after the PBoC rate cuts.
2. Brent oil (BCO) forms broadening wedge patterns on daily and 4-hour charts, which indicates strong volatility in the coming days.
3. Natural gas (NG) rebounds from the strong support zone of $2.08 to $2.24.

The People’s Bank of China announced interest rate cuts

On Monday, the People’s Bank of China (PBoC) announced larger-than-expected interest rate cuts. The one-year Loan Prime Rate was lowered by 25 basis points to 3.1%, and the five-year Loan Prime Rate was cut to 3.60%.

These measures aim to revive economic growth and stimulate the struggling real estate sector, enhancing the outlook for oil demand as China remains the world’s largest oil importer. The aggressive rate cuts signal the government’s commitment to boosting consumption, resulting in a rise in oil prices, which had been sluggish due to uncertainty surrounding China’s stimulus efforts.

Geopolitical developments have mitigated some volatility in the oil market. Israel’s decision not to target Iran’s oil and nuclear facilities has alleviated concerns about potential supply disruptions. These combined factors have bolstered the oil market, though uncertainty persists. On Monday, WTI crude oil reached a high of $70.36, while Brent oil climbed to $74.24.

On the other hand, mild weather forecasts across the US are impacting natural gas (NG) demand. October has brought higher-than-expected temperatures in many regions, reducing heating needs. Natural gas prices have seen a rebound from support levels.

Brent Oil (BCO) Technical Analysis

Brent oil is currently developing a descending broadening wedge pattern on the daily chart. The price is trading below both the 50-day and 200-day simple moving averages (SMAs), and the RSI remains below the midline, indicating bearish momentum. On Monday, Brent oil experienced a rebound that was capped at $74.23. Given the characteristics of the broadening wedge pattern, we can anticipate an increase in volatility in the near term.

However, the price hits the support of an ascending broadening wedge. The price rebounded on the PBoC rate cuts but has now reached the RSI midline. Short-term support for Brent oil is at $72.40, and a break below this level could continue the downward momentum.

Natural Gas Daily Chart – Reversal from Strong Support

Natural gas prices bounced back on Monday from the support level provided by the 200-day SMA. Currently, prices are fluctuating between the 50-day and 200-day SMAs as they seek their next direction. The price hovers around the $2.24 support zone, marked by the black dotted trendline, which serves as the neckline of a double-bottom pattern. There is a robust support zone for natural gas between the $2.08 and $2.24 levels, indicating potential for further upward movement.

With the RSI in highly oversold territory, the price rebounds to recover from the bottom. A break below $2.08 could further decline natural gas prices.

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Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.