Oil gets messy with China concerns, Israel and Hurricane Milton inducing a frenzy among traders

• Crude oil corrects more than 2% on Tuesday as concerns over China emerge after the country reopens from Golden Week.
• Markets are assessing possible Israeli retaliation as time passes.
• The US Dollar Index eases for a second day in a row as the DXY’s short run appears to be ending.

Crude Oil sees last week’s rally hit on Tuesday ahead of the US opening bell as China reopens and returns to markets after the Golden Week festivities. A slide in China’s Hang Seng stock index, down nearly 10 percent at its closing bell, fueled global concerns about China and its economic recovery. This also has implications for crude oil, with demand from the Asian giant likely to be lower than previously anticipated again.

The US dollar index (DXY), which tracks the greenback’s performance against six other currencies, fell for a second day in a row on Tuesday. The DXY saw a brief steep rally last week, with the US dollar bears being knocked out of their position in the process. Slowly but surely, the US dollar (USD) bulls are starting to take profit in the rally, with the DXY in a slow decline looking for first support.

At the time of writing, crude oil (WTI) is trading at $75.29 and Brent at $79.22.

Oil and Market News: Big Worry Milton

• Libya’s oil production climbed above 1 million barrels per day for the first time in two months after a political impasse in the country was resolved, Bloomberg reports.
• Chevron shut down oil production at the Blind Faith platform in the US Gulf of Mexico ahead of Hurricane Milton, Reuters reports.
• Chevron Corp and Canadian Natural Resources Ltd. have signed a $6.5 billion deal for Chevron to sell undeveloped oil sands in Canada’s Alberta province, Rigzone reports.
• Hurricane Milton is heading up the Gulf Coast toward the US peninsula of Florida and is expected to make landfall by Wednesday morning, according to recent data from the US National Hurricane Center.
• At 20:30 GMT, the American Petroleum Institute (API) will publish its weekly number of changes in crude oil inventories. There was a drawdown of 1.5 million barrels last week, with a build-up of 1.95 million expected this week.

Technical Oil Analysis: This is where it gets messy

The price of crude oil was forced to sell off after a steep rise due to the mix of geopolitical tensions. As time passes and Israel doesn’t really offer a military response, tensions begin to ease. Add in news from Libya and concerns about China, and the correction takes on more weight. Expect to possibly see further correction until strong support is found.

Monday’s false break should be ignored as the move was fully associated on Tuesday. This means that the current pivot levels to the upside are still valid: the red downtrend line in the chart below and the 100-day simple moving average (SMA) at $75.72 above it makes this region very difficult to overcome. Once it holds above, the 200-day SMA at $77.15 should reject any further upside, as it did in early trading on Tuesday.

On the downside, old resistors have turned into supports. The first is the 55-day SMA at $72.71, which acts as a potential first line of defense in case of any pullback. A little further down, $71.46 comes into play as second support before looking back at the high of $70.00 and $67.11 as final support for traders to buy the dip.

US WTI Crude Oil: Daily Chart