U.S. West Texas Intermediate (WTI) crude oil prices rallied on Thursday, ending a three-day losing streak, as reports emerged that Saudi Arabia and Russia were discussing ways to enhance market stability. Nonetheless, the U.S. benchmark remains in a position to post a nearly 10% loss for the week.
Weekly Recap
WTI and Brent oil prices plunged throughout the week to their lowest levels in more than a year on concerns that a crisis of confidence in the banking sector could trigger a recession and cut demand. Both crude benchmarks hit their lowest levels since December 2021 after posting a steep three-day plunge. Brent had fallen by more than 10% since Friday's close, while U.S. crude was down more than 14% at one point.
Hedge funds were liquidating because of rising interest rates and economic uncertainty. Heavy selling pressure on U.S. stock markets was adding to the fund liquidation in crude. The U.S. dollar also strengthened against a basket of currencies, making it more expensive for holders of those currencies to purchase crude.
Adding to the bearishness in the market, U.S. crude stockpiles rose by 1.6 million barrels last week, government data showed, more than the expected rise of 1.2 million barrels in a Reuters poll of analysts.
The primary driver behind the bearish price action was a broad concern for the global economy and risk-off sentiment in the market.
Crude recovered some of its earlier losses along with benchmark equity…
U.S. West Texas Intermediate (WTI) crude oil prices rallied on Thursday, ending a three-day losing streak, as reports emerged that Saudi Arabia and Russia were discussing ways to enhance market stability. Nonetheless, the U.S. benchmark remains in a position to post a nearly 10% loss for the week.
Weekly Recap
WTI and Brent oil prices plunged throughout the week to their lowest levels in more than a year on concerns that a crisis of confidence in the banking sector could trigger a recession and cut demand. Both crude benchmarks hit their lowest levels since December 2021 after posting a steep three-day plunge. Brent had fallen by more than 10% since Friday's close, while U.S. crude was down more than 14% at one point.
Hedge funds were liquidating because of rising interest rates and economic uncertainty. Heavy selling pressure on U.S. stock markets was adding to the fund liquidation in crude. The U.S. dollar also strengthened against a basket of currencies, making it more expensive for holders of those currencies to purchase crude.
Adding to the bearishness in the market, U.S. crude stockpiles rose by 1.6 million barrels last week, government data showed, more than the expected rise of 1.2 million barrels in a Reuters poll of analysts.
The primary driver behind the bearish price action was a broad concern for the global economy and risk-off sentiment in the market.
Crude recovered some of its earlier losses along with benchmark equity indexes after Swiss regulators pledged a liquidity lifeline to Credit Suisse, which had earlier seen shares fall as much as 30%.
On Thursday, crude oil prices recovered after Saudi and Russian energy ministers met in the Saudi capital to discuss the OPEC+ group's decision to cut production targets by two million barrels per day until the end of 2023.
This news gave hope to traders, who had been dumping oil futures over the past few days.
Weekly Technical Analysis
Weekly June WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart. A move through $80.97 will change the main trend to up. A trade through $65.89 will reaffirm the downtrend.
Retracement Level Analysis
The contract range is $37.04 to $100.48. Its retracement zone at $68.76 to $61.27. The market is currently testing this value zone.
The short-term range is $86.40 to $65.89. Its retracement zone at $76.15 to $78.57 is resistance.
The minor range is $80.97 to $65.89. Its pivot is $73.43.
Weekly Technical Forecast
The direction of the June WTI crude oil market the week ending March 24 is likely to be determined by trader reaction to the major 50% level at $68.76.
Bullish Scenario
A sustained move over $68.76 will signal the presence of buyers. This could create the upside momentum needed to challenge the pivot at $73.43.
Overtaking $73.43 will indicate the buying is getting stronger with $76.15 to $78.57 the next target area.
Bearish Scenario
A sustained move under $68.76 will indicate the presence of sellers. If this move creates enough downside momentum then look for a test of the major Fibonacci level at $61.27, followed by a pair of main bottoms at $59.06 and $56.09.
Short-Term Outlook
Technically speaking, despite the sharp, volatile sell-off, June WTI crude oil futures did come to rest inside a major, long-term support area at $68.76 to $61.27. This is a value area so we will not be surprised if professional buyers show up to stop the price slide.
The hedge funds are another story, however. They are speculators, but they are also businessmen. If they need to raise cash to meet market calls in the stock market or shore up positions in the bond market then they will not hesitate to liquidate crude oil positions to raise the money.
Furthermore, they may not initiate any new speculative positions until conditions in the financial markets stabilize. So while the market may have reached a value area, it’s not likely to rally very far unless new money comes in to support it. Rallies are difficult to sustain when fueled by short-covering.
On Thursday, the broader recovery in financial markets contributed to the uptick in oil prices, after Swiss regulators gave Credit Suisse a lifeline, and U.S. Treasury Secretary Janet Yellen reassured lawmakers that the U.S. banking system remains sound. The weakening of the dollar also made greenback-denominated oil cheaper for holders of foreign currencies, boosting demand.
To maintain the possibility of a recovery, crude oil traders must maintain their confidence in the stability of the U.S. banking system, and also require a weakening of the U.S. Dollar.
Given the possibility of continued rate hikes by other central banks, oil trading is expected to remain volatile. Traders are skeptical that the worst is over, despite the measures taken by authorities to support the banking sector.
Investors are likely to remain cautious as they assess the latest developments in the banking sectors of the U.S so we expect some of the traditional fundamental influences like supply and demand to take a backseat over the near term until conditions stabilize.
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