Oil reverses course, as Global recession worries resurface

WTI appears to be reversing course since the beginning of the week, as worries about a global recession are once again heightened. Prospects for future demand appear to be at the centre stage this week. In this report, we aim to shed light on the factors driving WTI’s price, assess its future outlook and conclude with a technical analysis.

Is a Global recession unavoidable?

As Central Banks continue to increase their interest rates, such as the ECB, BoE, SNB one can only wonder as to whether that the global economy will enter a recession, is only a matter of time. Persistent inflationary pressures in the world’s largest economies, continue to worry 交易員, as the continuance of the aggressive interest policy in hopes of stopping inflation, inadvertently hinders economic growth. The BoE’s interest rate hike by 50 basis points, earlier today was a stark reminder that the fight against inflation is not over and with analysts anticipating that a recession may be the only way for the central banks to reach their 2% inflation target, Oil - (石油) seems to be facing the brunt of those market worries. As the effects of quantitative tightening start to emerge in the markets, demand for goods and services might be mitigated, as consumers are less willing to spend and would rather save more, hence a reduction in consumer spending could lead to a decrease in the price of the liquid gold.

Fed Chair Powell clearly indicates that more rate hikes are to come

The statements made by Fed Chair Powell during his planned bi-annual testimony before the House of Representative yesterday, appears to have reduced market expectations of the Fed potentially remaining on pause 或者 cutting interest rates by the end of the year. It was characteristic that the Fed Chair’s comments re-iterated that “Inflation remains well above our longer-run goal of 2 percent” with nearly all FOMC participants expecting that it will be appropriate to raise interest rates further by the end of the year. The possibility of the Fed continuing on its aggressive interest rate warpath, seems to have heightened market worries that the Fed’s goal of brining inflation down to 2% will be achieved, no matter the cost . Therefore, inflation may be brought down at the expense of the economy, leading to a reduction in the price of Oil - (石油), as fears of an economic slowdown, seem to be taking the lead in the price of Oil - (石油).

Is Russia a team player?

Earlier this month, OPEC had re-iterated that Russia was committed to the production cuts that had been pledged. However, according to Bloomberg , Russian President Putin, during the St Petersburg economic forum last week, seemed to undermine that idea by stating that the output  in Russia  is growing, implying that instead of reducing production, Russia has been actually increasing the supply of Oil in the market. In the event that it is proved and stated by major OPEC+ nations that, Russia continues to undermine OPEC+, it is our own opinion that Saudi Arabia will be more stringent on Oil - (石油) cuts. Furthermore, the Kingdom could also in theory pressure oil producing countries to commit for further cuts in the future, in an attempt to combat Russia’s perceived insubordination.

技术分析

WTI Cash 4H Chart

• Support: 70.77 (S1), 68.50 (S2), 65.50 (S3)
• Resistance: 71.90 (R1), 74.50 (R2), 76.70 (R3)

WTI seems to be moving in a downwards fashion, despite having formed an upwards moving channel. We tend to maintain a bearish outlook for oil as it has once again broken below support turned resistance at the 71.90 (R1) level and supporting our case is the RSI indicator below our 4-Hour chart currently registering a figure at 50, implying a potential shift in market sentiment from a bullish to a bearish outlook. For our bearish outlook to continue, we would like to see a clear break below support at 70.88 (S1), in addition to breaking below the upwards moving channel, with the next possible target for the bears being the 68.50 (S2) support base. On the other hand, for a bullish outlook, we would like to see a clear break above the 71.90 (R1) resistance level with the next potential target for the bulls being the 74.50 (R2) resistance ceiling. However, we note that Oil has is still at the mid-range of the Bollinger bands and as such could be a market correction before moving higher. Furthermore, it is currently on the lower bounds of the upwards moving channel and has yet to break lower, implying the decline in Oil’s price may be temporary.

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