Crude Oil Price Forecast: Neutral
- Oil prices react to rising recession risks and rising inventories by plunging to 15-month lows.
- US crude (WTI) falls to technical support as a banking crisis adds to fears of a drop in demand.
- Brent Crude Oil remains in oversold territory with prices ending the week around $73.00.
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Deepening Recession Risks, Bank Failures and Falling Demand Expectations Push Oil Lower
After a week of chaos, oil prices resumed the downtrend that pushed WTI and Brent crude to 15-month lows. With the US banking system under pressure, growing fears of recession and rising inventories drove oil prices down.
For American crude oil (WTI), the weekly API (American Petroleum Institute) and the EIA (Energy Information Administration) echoed these concerns. While both data points shattered estimates, the IEA (International Energy Agency) reported that global oil supply (including Brent) hit an 18-month high.
DailyFX Economic Calendar
Despite the reopening of the Chinese economy and the sanctions against Russian oil and gas, stocks have increased. This contributed to the bearish move, heightening concerns about falling demand. Although Saudi Arabia, Russia and OPEC+ remain willing to cut production further, turmoil in financial markets continued to weigh on expectations.
In another week of elevated systemic risks, the price of oil could remain at the mercy of sentiment. While the weekly EIA report will indicate if the supply has been reduced. the FOMC and Fed rate decision will likely be the biggest threat.
DailyFX Economic Calendar
Given that oil prices have shown extreme sensitivity to the economic outlook, a higher than expected rate hike of 50 basis points or the failure of several banks, oil prices could remain vulnerable to further declines.
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Following 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 push Oil lower. With WTI losing 12.72% in the past week, a break down from $70.00 pushed prices towards the 200-week MA, currently providing support around the $66.00 mark.
US Crude Oil Futures Daily Chart (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 hold at $73.00.
— Written by Tammy Da Costa, Analyst for DailyFX.com
Contact and follow Tammy on Twitter: @Tams707