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Selling seems exaggerated, tight energy market supports recovery -by Ecork

Oil price outlook: a little upside

  • oil the prices Indulging in recession fears and reaching their lowest level in nearly a month, but the selling seems to be exaggerated
  • Despite the significant drop over the past week, tight energy markets, amid structural imbalances in supply and demand, are creating a constructive backdrop for WTI and Brent.
  • In terms of technical analysis, WTI is hovering above a major uptrend line, extending from its December 2021 lows. If this support continues, prices may rebound in the near term

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After a solid performance earlier this month, Oil prices sold out violently .this week, with a sharp decline with risky assets including stocks. With the long weekend approaching in the US (the Juneteenth holiday was observed on Monday), West Texas Intermediate (WTI) fell more than 10% to $107.7 a barrel for the whole week, its lowest level in nearly a month, burdened with recession fears. The S&P 500, for its part, was on its way to lose Around 5% During the same period, although the negative pressure eased on Friday for the stock index.

Investors are increasingly concerned that The Fed’s Violent Hiking Course Aimed to curb inflation, which is running at its fastest pace since 1981, will send the US economy into a hard landing, a scenario that could significantly undermine demand for goods.

This is my past Wednesday , Fed raised borrowing Costs increased by three quarters of a percentage point to 1.50-1.75% noted It will provide another 150 basis points of tightening this year, a move that will push the fed funds rate above the neutral territory and into the restricted area. restrictive monetary policy At the time of slowing activity will become For more continue Gross Domestic Product (GDP)which increases the possibility of Downturn in the world’s largest economy.

Despite mounting headwinds of growth, oil keeps rising constructive outlook. For example, even if energy consumption will cool against the background of demand destruction, Very narrow markets The structural imperfection should limit the downside.

Focusing on other stimuli, China is likely to do so Crude oil imports rise As the second half of the year approaches with improved mobility after the closures caused by the emerging corona virus. In addition, Russian oil exports are likely to decline in the wake of the gradual EU embargo, exacerbating supply and demand imbalances worldwide. It is true that President Putin’s government may redirect energy flows to friendlier nations, such as India and China, but logistical constraints mean some barrels will be tossed out for good, at least on a near-term horizon.

For the above reasons, the weakness in oil seen in recent days may be temporary and ExaggeratedAnd the suggestion That there could be a recovery in the short term once the intense fear dissipates and traders reset their medium term expectations.

Oil Technical Analysis

After this week’s tough sell-off, Oil (WTI Futures) is hovering slightly above a major uptrend line from its December 2021 lows, and is now above $106.50. In the case of a test, this line, which has flawlessly guided prices higher since late last year, may act as a strong support, paving the way for a near-term technical recovery away from those levels. If the bullish reversal scenario continues in the coming days, initial resistance will appear around the 50-day simple moving average, followed by the $112.00 area. For more strength, focus shifts to $116.50.

On the flip side, if sellers maintain control of the market and WTI finally breaks below $106.50 in a decisive manner, we could see a pullback towards $104.50, which is the 38.2% Fibonacci retracement of the December 2021/March 2022 rally. If this floor is breached, it could intensify. Selling activity, revealing the $96.50 area, the 50% Fib retracement of the previously discussed move.

Crude oil daily chart

WTI oil chart was prepared using TradingView

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— By Diego Coleman, Market Strategist, DailyFX

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