Crude Oil Prices Get Beaten Down by Sour Sentiment and Rising Supply
Crude Oil Price Outlook: Neutral Oil prices react to rising recession risks and higher inventories by sinking to 15-month lows. US crude oil (WTI) falls to technical support as a banking crisis adds to worries about lower demand. Crude remains in oversold territory with prices closing the week around $73.00.
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Rising recession risks, bank failures and lower demand expectations force oil lower
After a week of chaos, oil prices have resumed the downtrend that pushed WTI and Brent crude to 15-month lows. With the US banking system under pressure, rising fears of a recession and rising inventories caused oil prices to fall.
For US Crude (WTI), both the weekly API (American Petroleum Institute) and EIA (Energy Information Administration) echoed these concerns. While both data points beat estimates, the IEA (International Energy Agency) reported that global oil supplies (including Brent) had risen to an 18-month high.
DailyFX Economic Calendar
Despite the reopening of China’s economy and sanctions against Russian oil and gas, stocks have risen. This contributed to the downward movement, exacerbating concerns about falling demand. Although Saudi Arabia, Russia and OPEC+ remain poised to cut production further, turmoil in financial markets continued to weigh on expectations.
In another week of elevated systemic risks, oil prices may remain at the mercy of sentiment. While the weekly EIA report will show if the supply has decreased. The biggest threat is likely to be the FOMC and Fed’s rate decision.
DailyFX Economic Calendar
Since oil prices have shown extreme sensitivity to the economic outlook, a higher-than-expected interest rate hike of 50 basis points or more should banks fail, oil prices could remain vulnerable to further declines.
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After the collapse of SVB and the lifelines offered to Credit Suisse and First Republic Bank, news of further rate hikes or the possible collapse of more banks could force oil lower. With WTI down 12.72% in the past week, a drop to $70.00 has forced prices towards the 200-week MA, currently offering support around $66.00.
US Crude Oil Futures Daily Chart (CL1!).
Chart prepared by Tammy Da Costa using TradingView
Similarly for Brent, a drop below the 50-day MA and below $80.00 helped a weekly decline of 11.57%, forcing prices to support at $73.00
— Written by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707