Crude Oil has been bearish since June, as it reversed lower after the surge on the Ukrainian conflict. Central banks picked up the pace of rate hikes in summer as inflation kept surging, which has been a negative factor for crude Oil for the reason that such rate hikes are putting the global economy which was already weak, into a recession. Consumers are already paying enormous prices for goods and services, so this will raise the mortgage and loan monthly installments.

WTI Oil Weekly Chart – Returning to the 100 SMA After the Failure

The 50 weekly SMA rejected crude Oil last week

US TI crude broke below the 50 SMA (yellow) on the weekly chart without much resistance from it, but the 100 SMA (green) stopped the decline and we saw a bounce off that moving average, as the USD entered a bearish period. But, that’s not a good reason to stay long on Oil.

Now sellers are facing the 100 SMA as support once again and I think that this time they will break below this moving average, as central banks are pledging to keep increasing interest rates. So, we will remain bearish on Oil and sell retraces higher.

BOE’s Cunliffe Commenting:

• Big LDI (liability driven investment) funds have got to a point where on average they could absorb a 200 basis point rise in yields
• As interest rates go up there are areas that are vulnerable especially in emerging markets
• Weaker areas are predominantly in non-bank finance
• We do not run stress tests on LDI’s
• There needs to be more coordination between central banks and security regulators
• LDI episode is mostly behind us. Financial markets will have to adjust to government fiscal policies
• we are sufficiently confident in the gilt market to set out QT program

It is interesting that Cunliffe sites the abilities of LDI’s to absorb a 200 basis point rise, but they do not run stress tests on LDI’s. Meanwhile, this week we saw a drawdown in the EIA inventory, which should have helped but crude Oil didn’t benefit from it, which is yet another bearish sign

Weekly EIA inventory data:

• crude oil inventory draw of -1.725M vs an expected build of 1.380M
• gasoline a draw of -0.114M vs. an expected draw of -1.114M
• distillates a build of 0.124M vs. an expected draw of -2.167M
• refinery utilization -0.4% vs. -0.3% estimate

The private data estimates from last night showed crude oil inventories declining and gasoline inventories declining.

Yesterday’s API Inventory Numbers

US WTI Crude Oil Live Chart