U.S. West Texas Intermediate crude oil futures are trading lower late Thursday, pressured by a stronger U.S. Dollar and worries that further aggressive interest rate hikes by the Federal Reserve would cast the economy into recession, leading to lower demand. However, losses are being limited by concerns over tight supply.
Friday's price action represents a flip from the previous session's higher close. On Wednesday, the Fed boosted interest rates 75 basis points and Chairman Jerome Powell dampened hopes of smaller rate hikes in December when he said it was premature to think about pausing rate increases. However, that potentially bearish news was flattened by another drop in U.S. crude oil inventories.
Tight supply concerns are being driven by another draw in U.S. stockpiles, an OPEC+ output cut and the upcoming embargo of Russian oil by the European Union.
Worries about a global recession are being fueled by a sharp rise in the U.S. Dollar, which could dampen foreign demand for dollar-denominated oil. The greenback is being bolstered by a surge in Treasury yields, making the dollar a more attractive investment. Yields are being driven higher by hawkish commentary from hawkish Fed Chairman Jerome Powell who said on Wednesday it was premature to consider pausing rate increases.
Fed Signals Higher Peak in Rates
On Wednesday, the U.S. Federal Reserve surprised traders by indicating interest rates would continue higher until inflation reaches its mandated…
U.S. West Texas Intermediate crude oil futures are trading lower late Thursday, pressured by a stronger U.S. Dollar and worries that further aggressive interest rate hikes by the Federal Reserve would cast the economy into recession, leading to lower demand. However, losses are being limited by concerns over tight supply.
Friday's price action represents a flip from the previous session's higher close. On Wednesday, the Fed boosted interest rates 75 basis points and Chairman Jerome Powell dampened hopes of smaller rate hikes in December when he said it was premature to think about pausing rate increases. However, that potentially bearish news was flattened by another drop in U.S. crude oil inventories.
Tight supply concerns are being driven by another draw in U.S. stockpiles, an OPEC+ output cut and the upcoming embargo of Russian oil by the European Union.
Worries about a global recession are being fueled by a sharp rise in the U.S. Dollar, which could dampen foreign demand for dollar-denominated oil. The greenback is being bolstered by a surge in Treasury yields, making the dollar a more attractive investment. Yields are being driven higher by hawkish commentary from hawkish Fed Chairman Jerome Powell who said on Wednesday it was premature to consider pausing rate increases.
Fed Signals Higher Peak in Rates
On Wednesday, the U.S. Federal Reserve surprised traders by indicating interest rates would continue higher until inflation reaches its mandated 2% level. This not only dampened expectations of a slowdown in rate increases starting in December but it also fanned the fears of recession by obscuring the global economic outlook.
Higher rates strengthen the U.S. Dollar and a stronger greenback tends to weigh on foreign demand for dollar-denominated crude oil.
US Reports Another Drop in US Stockpiles
On Wednesday, the U.S. Energy Information Administration reported that U.S. crude oil stocks fell about 3.1 million barrels on the week. Gasoline inventories fell by 1.3 million barrels. Distillate stockpiles, which include diesel and heating oil, rose by 427,000 barrels in the week to 106.80 million barrels, versus expectations for a 560,000-barrel drop.
Weekly Technical Analysis
Weekly December WTI Crude Oil
Trend Indicator Analysis
The main trend is down. However, momentum has shifted to the upside following the confirmation of the closing price reversal bottom from the week-ending September 30.
A move through $95.55 will change the main trend to up. A trade through $75.70 will signal the resumption of the downtrend.
The minor trend is up. A new minor top has formed at $92.34. A trade through this level will reaffirm the minor uptrend. A trade through the minor bottom at $81.30 will change the minor trend to down. This will also shift momentum to the downside.
Retracement Level Analysis
The short-term range is $110.78 to $75.70. With momentum shifting to the upside, its retracement zone at $93.24 to $97.38 becomes the primary upside target and potential resistance zone.
The new minor range is $92.34 to $81.30. Its pivot at $86.82 is the nearest support.
The main range is $60.20 to $110.78. The market is currently trading on the bullish side of its retracement zone at $85.49 to $79.52, making it support.
The contract range is $34.75 to $110.78. Its retracement zone at $72.77 to $63.79 is the next major downside target and value zone.
Weekly Technical Forecast
The direction of the December WTI crude oil market the week-ending November 11 is likely to be determined by trader reaction to the pair of 50% levels at $85.49 and $86.82.
Bullish Scenario
A sustained move over $86.82 will signal the presence of buyers. This could lead to a quick test of the resistance cluster at $92.34 to $93.24, followed by the main top at $95.55 and the Fibonacci level at $97.38. The latter is a potential trigger point for an acceleration to the upside.
Bearish Scenario
A sustained move under $85.49 will indicate the selling pressure is getting stronger. This could trigger an acceleration into the Fibonacci level at $79.52. This is the last support before the main bottom at $75.70. Taking out this level will signal a resumption of the downtrend.
Short-Term Outlook
Although rising interest rates and a stronger dollar could put pressure on crude oil prices, so far they are only capping gains. This is because a few factors are helping to underpin prices. They include tight supply concerns due to OPEC+ output cuts that kicked in on Nov 1 and the European Union's embargo on Russian oil that begins on Dec 5.
Furthermore, comments from earlier in the week also suggest that China may be willing to ease its COVID-19 restrictions. Additionally, Chinese policymakers pledged on Wednesday that growth was still a priority and they would press on with reforms.
We're sticking with our bullish outlook for now until we start to see some hard evidence of a global recession. Until then, we are going to assume that the OPEC+ output cuts and the EU embargo on Russian oil will underpin prices.