The oil market might be sensing demand destruction as Fed hikes come into the equation
FUNDAMENTAL OVERVIEW
The oil market has been dead for months. The price action has been mostly rangebound with bouts of volatility caused by US-Iran headlines. There is no direction whatsoever, just noise in a wide range.
Last Friday, we got some interesting reaction to the US NFP report. Oil prices fell alongside many other markets as the US jobs data raised the probabilities of the Fed being forced to deliver one or more rate hikes due to prolonged US-Iran stalemate and elevated inflation.
I mentioned in previous articles that there’s a scenario where the global economy falls into recession due to central banks tightening into a negative supply shock. In fact, this action by the Fed would likely lead to a bear market and trigger the ripple effect of lower business confidence, layoffs and so on. That would bring oil prices lower on demand destruction even if the Strait of Hormuz remains closed.
The recent weakness in the oil market seems to be linked to this scenario since markets move based on future expectations. So, the upside is capped by the risk of Fed tightening and slowing demand or Trump caving in and making a deal at some point. The downside is more likely even if we get one last spike on another war as that would just accelerate the demand destruction thesis.
CRUDE OIL TECHNICAL ANALYSIS – DAILY TIMEFRAME
On the daily chart, we can see that crude oil has been stuck in a huge range and the price action has been mainly driven by US-Iran headlines. We have two major levels on the downside with the upward trendline and the support zone around the 78.00 level. On the upside, we have the downward trendline and the cycle highs above the 120.00 mark. We need to zoom in to see some more details.
CRUDE OIL TECHNICAL ANALYSIS – 4 HOUR TIMEFRAME
On the 4 hour chart, we have a downward trendline defining the bearish structure. From a risk management perspective, the sellers will have a better risk to reward setup around the trendline to position for a drop into the 78.00 support. The buyers, on the other hand, will want to see the price breaking higher to extend the rally into the major trendline around the 110.00 level.
CRUDE OIL TECHNICAL ANALYSIS – 1 HOUR TIMEFRAME
On the 1 hour chart, we have a resistance zone around the 90.00 handle. We can expect the sellers to step in there with a defined risk above the resistance to keep pushing into new lows. The buyers, on the other hand, will look for a break higher to pile in for a rally into the trendline around the 96.00 level. The red lines define the average daily range for today.
UPCOMING CATALYSTS
Today, we have the US CPI report. Tomorrow, we get the latest US Jobless Claims figures and the US PPI report. On Friday, we conclude the week with the University of Michigan consumer sentiment survey.
This article was written by Giuseppe Dellamotta at investinglive.com.提供 MainLink：Investinglive RSS Breaking News Feed
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