Crude oil has had a torrid week so far with wider market movements overshadowing the optimism of China re-joining the global economy. The Federal Reserve, the European Central Bank (ECB) and the Bank of England (BoE) all tightened monetary policy in the last few days. While stocks have broadly rallied, black gold has struggled to find support. The increasingly restrictive stance from central banks globally has contributed to speculation around the probability of a recession in these major economies. The market interpreted the Fed as potentially nearing the end of its rate hike cycle despite Fed Chair Jerome Powell specifically saying that he did not see a rate cut this year. Interest rate futures and the swaps market have priced in a cut for November. While the US Dollar has gained ground in the last 24 hours, it continues to languish against other currencies and gold. The DXY index, a broad measure of the US Dollar against a basket of currencies, remains near a 10-month low. The lower dollar may assist other countries to increase oil demand as it becomes cheaper in their domestic currency. Prior to the Fed meeting, data from the Energy Information Administration (EIA) showed inventories increased by 4.1 million barrels last week, well above market estimates.
OPEC+ Left Production Targets Unchanged at Their Gathering This Week.
Elsewhere, it is anticipated that Europe will soon introduce further restrictions on Russian refined oil products. It appears that the outlook for crude is heavily dependent on the smooth transition of China away from its zero-case Covid-19 policy. An increase in demand from the Middle Kingdom might be enough to counterbalance a decrease in consumption in other parts of the world.
WTI CRUDE OIL TECHNICAL ANALYSIS
After making a 12-month low in December, crude oil has rallied to establish higher highs and higher lows in an ascending trend channel. Yesterday’s sell-off tested the lower trend line support and that move was rejected. That trend line and the low may provide support near 75.00 ahead of the previous lows at 72.46 and 70.08. The price has moved below all short, medium and long-term Simple Moving Averages (SMA) this week and that bearish momentum could unfold should the trend line be broken. While most SMAs have rolled over, the 21-day SMA maintains a positive gradient which might suggest that the market is unclear for directional momentum at this stage. Should that 21-day SMA turn negative, it may indicate that bearish momentum could be unimpeded. On the topside, resistance might be in the 82.48 – 82.72 area where there is a cluster of prior peaks ahead of the December high of 83.34.