Fears of a recession in the United States were heightened on Wednesday following the release of disappointing U.S. retail sales and industrial production data. A bigger-than-expected drop in U.S. producer inflation also weighed on sentiment.
The reports have crude oil traders questioning whether the Fed may have gone too far with its rate hikes and that expectations of a “soft-landing” in the economy have been taken off the table. Some traders may be pricing in the impact of a full-recession on crude oil demand.
Short-Term Outlook
Of course what happens to the U.S. economy will also hit China’s economy hard. So a U.S. recession could be devastating to China especially since the country is still trying to emerge from three-years of excessive COVID-19 restrictions.
That being said, it’s difficult at this time to forecast China demand. Opening up the economy will be one way to solve the global demand issue, but those gains could be limited if there is a global recession.
Crude prices have support as the removal of pandemic travel restrictions has bolstered expectations for a jump in domestic and international flights in China during the week-long Lunar New Year that begins on January 21.
China boosted its crude import quotas last Monday, a sign from the world's largest crude importer that it is gearing up to meet higher demand. As of this week, China has issued a combined 132 million metric tons (MMT) of quotas for crude imports in 2023, well above the quota for 109 MMT at the same time last year.
technical view:
oil is trying and grappling with neck line of head and shoulder pattern and also is in corrective waves .if neck line and last high broken so oil will try to complete a 5 wave to go further higher but there is another scenario that corrective wave is being underway and c leg initiates toward 76.64$ before rally continuation
lower than above level we should reconsider our analysis .
The reports have crude oil traders questioning whether the Fed may have gone too far with its rate hikes and that expectations of a “soft-landing” in the economy have been taken off the table. Some traders may be pricing in the impact of a full-recession on crude oil demand.
Short-Term Outlook
Of course what happens to the U.S. economy will also hit China’s economy hard. So a U.S. recession could be devastating to China especially since the country is still trying to emerge from three-years of excessive COVID-19 restrictions.
That being said, it’s difficult at this time to forecast China demand. Opening up the economy will be one way to solve the global demand issue, but those gains could be limited if there is a global recession.
Crude prices have support as the removal of pandemic travel restrictions has bolstered expectations for a jump in domestic and international flights in China during the week-long Lunar New Year that begins on January 21.
China boosted its crude import quotas last Monday, a sign from the world's largest crude importer that it is gearing up to meet higher demand. As of this week, China has issued a combined 132 million metric tons (MMT) of quotas for crude imports in 2023, well above the quota for 109 MMT at the same time last year.
technical view:
oil is trying and grappling with neck line of head and shoulder pattern and also is in corrective waves .if neck line and last high broken so oil will try to complete a 5 wave to go further higher but there is another scenario that corrective wave is being underway and c leg initiates toward 76.64$ before rally continuation
lower than above level we should reconsider our analysis .
Comment:
A rebound in China and an easing of rate hikes by the Federal Reserve are two reasons supporting crude oil prices. However, traders will be watching the COVID-19 numbers in China after the Lunar New Year holidays.
Prices could jump if the COVID numbers are low, but if they come in high or even lead to renewed restrictions in China then gains could be capped and prices could tumble.
Prices could jump if the COVID numbers are low, but if they come in high or even lead to renewed restrictions in China then gains could be capped and prices could tumble.
Comment:
In what can only be seen as a bullish sign that perhaps the heavy selling pressure is over, portfolio investors have piled back into petroleum futures and options at the fastest rate for more than two years as concerns about a global business cycle downturn have eased.
hedge funds and other money managers purchased the equivalent of 89 million barrels in the six most important petroleum contracts over the seven days ending on Jan. 17.
Purchasing was the fastest since November 2020 (shortly before the first successful coronavirus vaccine trials were announced) and before that April 2020 (when the first lockdowns started to be eased).
the sudden turn around seems to have been driven by a combination of low initial positioning and a sudden increase in confidence about the outlook for the global economy and oil consumption. Recent inflation data have shown the rate of price increases is moderating, which has raised hopes for an early peak in the interest rate cycle.
hedge funds and other money managers purchased the equivalent of 89 million barrels in the six most important petroleum contracts over the seven days ending on Jan. 17.
Purchasing was the fastest since November 2020 (shortly before the first successful coronavirus vaccine trials were announced) and before that April 2020 (when the first lockdowns started to be eased).
the sudden turn around seems to have been driven by a combination of low initial positioning and a sudden increase in confidence about the outlook for the global economy and oil consumption. Recent inflation data have shown the rate of price increases is moderating, which has raised hopes for an early peak in the interest rate cycle.
Comment:
Daily Swing Chart Technical Forecast
Trader reaction to the main 50% level at $80.23 is likely to determine the direction of the March WTI crude oil market early Thursday.
Bullish Scenario
A sustained move over $80.23 will indicate the presence of buyers. This could trigger an acceleration into a resistance cluster at $82.51 – $82.66. This is followed by a main top at $83.14. Taking out this level with strong volume could trigger an acceleration to the upside.
Bearish Scenario
A sustained move under $80.23 will signal the presence of sellers. This could trigger a quick break into the minor bottom at $78.45, followed by the minor pivot at $77.70.
If $77.70 fails as support then look for the selling to possibly extend into the short-term retracement zone at $76.61 – $75.18.
Trader reaction to the main 50% level at $80.23 is likely to determine the direction of the March WTI crude oil market early Thursday.
Bullish Scenario
A sustained move over $80.23 will indicate the presence of buyers. This could trigger an acceleration into a resistance cluster at $82.51 – $82.66. This is followed by a main top at $83.14. Taking out this level with strong volume could trigger an acceleration to the upside.
Bearish Scenario
A sustained move under $80.23 will signal the presence of sellers. This could trigger a quick break into the minor bottom at $78.45, followed by the minor pivot at $77.70.
If $77.70 fails as support then look for the selling to possibly extend into the short-term retracement zone at $76.61 – $75.18.
Comment:
Oil prices gained on Friday after Russia, the world’s third largest oil producer, said it would cut crude production in March by 500,000 barrels per day (bpd), or about 5% of output, according to Reuters. The move is being called a retaliation against western curbs on its exports that were imposed in response to the Ukraine conflict.
If you do the math, the 500,000 bpd cut would bring Russia back in line with its OPEC+ quota as Moscow is currently over-exporting.
If you do the math, the 500,000 bpd cut would bring Russia back in line with its OPEC+ quota as Moscow is currently over-exporting.
The market is being underpinned by optimistic remarks from the International Energy Agency (IEA) and OPEC. The IEA said the lifting of COVID-19 restrictions in China is set to increase global demand to a record high this year. Earlier in the week, OPEC forecast a Chinese demand rebound in 2023.
Hopes for a softer tone from the Federal Reserve are also providing support. According to a Reuters poll, experts expect the Fed to increase rates by 25 basis points two more times before pausing.
technical view:
Bullish Scenario
A sustained move over $80.23 will indicate the presence of buyers. If this creates enough upside momentum then look for a surge into the resistance cluster at $82.51 – $82.66, followed by a main top at $83.14.
Taking out $83.14 will reaffirm the uptrend and could trigger an acceleration to the upside with the next major targets $87.00 and $89.89.
Bearish Scenario
A sustained move under $80.23 will indicate the presence of sellers. This could trigger a labored break with potential targets lined up at $78.45, $77.70 and $76.61.