Last Friday WTI tested the price under $80 for the first time since September 28. The downtrend continued at the beginning of this week as well, to test the $75.20 on Monday. However, right after that bulls regained all their losses on Monday to close at the opening price, a little above $80.
The bears are trying to prove themselves
Global stock markets are mixed in muted trade, as investors warily check the likely impact on global growth from the surge in COVID cases in China. After recently imposed lockdowns, and while some big cities even struggling with a new outbreak of COVID cases, the first COVID-related death in almost six months was reported over the weekend.
This increased fears in China, directly affecting the global economy, as we are talking about the second biggest world economy. Add the market participants’ concerns about the global economic outlook from a macro perspective, while the central banks’ tightening of monetary policies continues. While European Central Bank committed to increasing the interest rates to combat inflation at record levels, in the US, some Federal Reserve officials stood up and emphasized that the central bank would not stop raising interest rates in the short term, extinguishing the market’s hope that the central bank would end its tightening monetary policy earlier than expected.
With these outlooks and expectations, we can now see the economic recession risk is heating up. Last week, the United Kingdom, one of the world’s major economies, clearly judged that its economy has fallen into recession, which will last until 2024, while they are facing inflation above 11%.
A sharp slowdown of the global economy will end with a decline in demand. Data showed that oil futures trading volume hit the lowest level since September last year, reflecting the deterioration of the physical crude oil market. The latest output cut of OPEC+ by 2 million barrels per day, was the response to these reports. The next OPEC+ meeting will be on December 4 to discuss the scale of oil production in early 2023.
For now, fundamental data can show more weakness, but bears also do not have enough incentives to fall so sharply. From the technical point of view, as I mentioned in the previous analysis, under $83 we entered into a clear downtrend. The next targets are sitting around $75 and $70 respectively. On the flip side, a return above $83 can change the trend to its earlier seen range between $83 – 92.