Crude Oil: Price Crash in Sight?
2023.02.23 14:38
Oil have taken a hit recently, dropping from $80 to $74 in just a few days. The drop is likely due to the threat of rising interest rates, which would increase the strength of the dollar and make raw materials more expensive.
Two Federal Reserve officials have indicated that further interest rate hikes may be necessary to curb .
Meanwhile, the Energy Information Administration has reported that U.S. commercial crude inventories have risen for the eighth consecutive week, increasing by a staggering 16.3 million barrels for the week ending Feb. 10. This figure is more than 1500% higher than forecasted, which is a very negative sign for the market.
The Biden administration has announced plans to continue reducing the US Strategic Petroleum Reserve, which will put an additional 26 million barrels on the market. This could result in an excess supply, leading to further drops in oil prices in the short term.
The International Monetary Fund has forecasted that a recession will affect a third of the global economy this year, and economists predict a 70% chance of a recession in the US. In the event of a recession, demand for oil is likely to drop sharply, and the reopening of China alone will not be sufficient to sustain it. Overall, it appears that the current climate is not favorable for the oil industry.
Analyzing oil production, we note that Nigeria and Venezuela are pushing hard with production together with Russia, despite the fact that the latter recently announced a production cut. All that drove OPEC’s production increase of more than 150,000 barrels per day in December.
There’s also a clear deterioration in the technical situation.
After a negative day, crude oil opened at 76.11, down 0.05 points from the previous close. Subsequent selling then prompted it to close lower at 73.95, below the previous low, after a relative high at 76.55. The performance was therefore negative, with -2.9%.
The drop in prices is accompanied by great conviction on the part of investors. The strength of the movement in progress is therefore remarkable.
The bearish phase continues for both trends in the short and medium term. Further confirmation of the short-term negativity is given by the close below the fast moving average.
The price also sits below the slow moving average. As long as the price remains below the two averages and they proceed detached, the trend will be well defined.
We could see $70 soon.
