Crude oil prices are being knocked down by a sour mood and increasing supply
Crude oil price forecast: Neutral
- Oil prices react to rising recession risks and higher inventories by falling to 15-month lows.
- US Crude (WTI) falls to technical support as a banking crisis adds to concerns about lower demand.
- Brent crude remains in oversold territory with prices ending the week around $73.00.
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Increasing recession Risks, bank failures and lower demand expectations are forcing oil down
After a week of chaos, oil prices have resumed the downward trend that pushed WTI and Brent crude to 15-month lows. With the US banking system under pressure, growing fears of a recession and rising inventories sent oil prices plunging.
For US Crude (WTI), both the weekly API (American Petroleum Institute) and EIA (Energy Information Administration) echoed these concerns. While both data points crushed estimates, the monthly IEA (International Energy Agency) reported that global supplies of oil (including Brent) had risen to an 18-month high.
DailyFX Financial Calendar
Despite the reopening of China’s economy and sanctions against Russian oil and gas, inventories have increased. This added to the bearish move, exacerbating concerns over slowing demand. Although Saudi, Russia and OPEC+ remain willing to further cut production, financial market turmoil continued to weigh on expectations.
In another week of heightened systemic risk, oil prices may remain at the mercy of sentiment. While the weekly EIA report will indicate whether supply has been reduced. the interest rate decision from the FOMC and the Fed will probably pose the biggest threat.
DailyFX Financial Calendar
As oil prices have shown extreme sensitivity to the economic outlook, a higher-than-expected 50 basis point interest rate hike or several bank failures, oil prices may remain vulnerable to further falls.
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After the collapse of SVB, and the lifeline offered to Credit Suisse and First Republic Bank, news of further rate hikes or the potential collapse of more banks could force oil lower. With WTI losing 12.72% in the past week, a downside break of $70.00 has forced prices towards the 200-week MA, which currently provides support around $66.00.
Daily Chart for US Crude Oil Futures (CL1!).
Chart prepared by Tammy DaCosta using TradingView
Similarly for Brent, a drop below the 50-day MA and below $80.00 contributed to a weekly decline of 11.57%, forcing prices to support at $73.00
— Posted by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707