Greed Quickly Turns Into Fear for Crude Oil

Posted Wednesday, June 22, 2022 by
Skerdian Meta • 2 min read

Will oil prices reverse lower in April?

It’s not a good look for crude Oil today again, as prices are taking another dive. There isn’t any specific factor for this dive today but a mix of factors are weighing on crude Oil during the latest retreat since crossing over $123 early last week, alongside some heavy profit-taking activity. This is bringing into focus some key technical levels as mentioned below.

The main view looking at the larger picture is that the market remains tight but amid global recession fears, China lockdowns, and Biden trying to claw his way back before the midterms later this year, which are weighing on crude Oil at the moment. There was news earlier today, that a Russian Oil refinery in the Rostov region was ablaze on Wednesday morning after a reported hit from a Ukrainian drone, authorities said.

The latest retreat today brought into focus some key support and resistance levels on the chart, with the trendline support around $106.44 looking to give way. Below that was the 61.8 Fibonacci retracement level of the recent swing higher at $104.69.

Crude Oil Daily Chart – WTI Pushing for New Lows

MAs have turned into resistance for US crude Oil

That was supposed to provide support for Oil, but it was broken pretty easily, which was a significant win for sellers. WTI is down around $7, now trading at $102.50, which is the lowest since May 12. Now the next targets for sellers will be the $100 round level and the support zone below $95. If Oil breaks below those levels, then it will be considered bearish. The odds of a global economic recession keep increasing as inflation increases and central banks keep pushing the pedal on rate hikes without any success.

Goldman Sachs on US Recession Risk:

30% probability of entering a recession over the next year (vs.15%previously)
And a 25% conditional probability of entering a recession in the second year if we avoid one in the first year,
Implying a 48%cumulative probability at a two-year horizon (vs.35%previously)

Citing:

Our baseline growth path is now lower
We are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.
The war and further commodity price shocks have admittedly made the echoes of the 1960s and 1970s ring louder.
But we are skeptical that hot wage growth and high inflation expectations are as entrenched today as back then.