WTI crude was exposed to sharp losses on Wednesday, with prices tumbling towards $50 after an unexpected weekly climb in U.S. gasoline supplies compounded with existing oversupply fears. Although some losses were clawed back during early trading on Thursday as investors attempted to look beyond the oversupply dilemma and focus on the slight drop in U.S. crude inventories, the bias remains tilted to the downside. With anticipation likely to heighten ahead of the scheduled 25 May conference when OPEC and Non-OPEC oil producers will meet, oil price sensitivity could become a dominant theme moving forward. Although OPEC remains optimistic that production cuts with non-members may uplift oil prices, the resurgence of U.S. shale continues to sabotage the cartel's efforts to stabilize the saturated markets.
While some investors remain optimistic over OPEC extending its production cut by another six months to battle oversupply woes, questions may be raised if such measures could reduce the global supply glut and revive oil bulls. The sentiment towards oil remains bearish and when factoring in how Donald Trump’s pro-drilling rhetoric and deregulations may continue to negatively impact oil markets, further losses could be expected. From a technical standpoint, bears have conquered the $52 support level with prices almost clipping $50 per barrel U.S. crude. Previous support at $52 could transform into a dynamic resistance that opens a path towards $50 and potentially lower.
Global stocks on the defense
The combination of depressed oil prices and a sense of anxiety ahead of the French presidential elections this weekend has left investors edgy and stock markets on the defense. Although Asian shares have displayed a touch of resilience during early trading on Thursday, the upside could be limited if participants start to depart from riskier assets amid the uncertainty. European markets are expected to open slightly pressured as investors observe from a safe distance; this sense of caution could potentially limit gains on the financial market. With the Trump rally losing momentum and geopolitical tensions weighing on global sentiment, stock markets are in desperate need of inspiration to fuel the bull rally.
Sterling hovering around 1.2800
Sterling has staged an awe-inspiring rebound this week off the back of UK Prime Minister Theresa May shocking markets by announcing early elections. However, questions should be raised whether the rally is sustainable. With political risks and uncertainty revolving around Brexit remaining a dominant theme when dealing with Sterling, the bullish rally could face some headwinds down the road. Investors may direct their attention towards BoE governor Mark Carney who is scheduled to deliver a speech today. With the Brexit saga gaining traction and UK economic data displaying some signs of weakness over the past months, it will be interesting to hear Carney's thoughts on these developments. From a technical standpoint, the British pound/U.S. dollar (GBP/USD) currency pair has broken above the 1.2775 resistance level, with the next level of interest at 1.3000.