Why did traders start unloading crude oil

US West Texas Intermediate crude futures are trading lower on Friday shortly after the release of a strong US non-farm payroll report indicating that the US is not in a recession and that the Federal Reserve is likely to continue on its strong path to raising interest rates. .

Prices came under pressure this week as traders worried about the impact of inflation on economic growth and demand, but tight supply kept prices lower.

The price action over the week suggests that traders are taking the risk of a recession seriously – which means demand will be affected, but today’s US jobs report suggests that the economy may not be going that way. Moreover, it may mean that investors will turn their attention back to the market facing short supply and producers who do not have the ability to change that.

Price hike worries bulls

After rising last week on concerns about a tightening of supply, prices have fallen significantly this week due to fresh concerns about too much supply due to weak fuel demand. The drop in fuel demand is linked to higher interest rates that slow global economic growth.

If the correlation between higher interest rates and lower fuel demand continues, prices could fall a lot as major central banks are likely to keep raising rates until at least September and possibly until the end of the year.

Higher interest rates in the US help support the US dollar, and…

US West Texas Intermediate crude futures are trading lower on Friday shortly after the release of a strong US non-farm payroll report indicating that the US is not in a recession and that the Federal Reserve is likely to continue on its strong path to raising interest rates. .

Prices came under pressure this week as traders worried about the impact of inflation on economic growth and demand, but tight supply kept prices lower.

The price action over the week suggests that traders are taking the risk of a recession seriously – which means demand will be affected, but today’s US jobs report suggests that the economy may not be going that way. Moreover, it may mean that investors will turn their attention back to the market facing short supply and producers who do not have the ability to change that.

Price hike worries bulls

After rising last week on concerns about a tightening of supply, prices have fallen significantly this week due to fresh concerns about too much supply due to weak fuel demand. The drop in fuel demand is linked to higher interest rates that slow global economic growth.

If the correlation between higher interest rates and lower fuel demand continues, prices could fall a lot as major central banks are likely to keep raising rates until at least September and possibly until the end of the year.

Higher interest rates in the US help support the US dollar, and since crude oil is a dollar-denominated asset, foreign demand is falling. The assessment comes just one week after Russia shut down a major pipeline to Europe that drove US crude oil exports to a record high.

Too little demand leads to too much supply

Data from the US Energy Information Administration (EIA) showed that US crude oil inventories rose by 4.5 million barrels last week versus expectations for a 630,000-barrel drawdown.

Gasoline inventories rose by 163,000 barrels in the week ending July 29, versus expectations for a decline of 1.61 million barrels.

Energy Information Administration data showed that distillate stocks, which include diesel and heating oil, fell 2.4 million barrels in the week to 109.3 million barrels, against expectations of a rise of one million barrels.

The Energy Information Administration said net crude imports rose suddenly by 2.21 million barrels per day. In the previous week, US crude oil exports jumped to an all-time high last week, which contributed to another drop in inventories, driven by external demand due to the large discount to US crude compared to the international benchmark Brent.

The drop in inventories last week was in large part the result of a surge in crude exports to a record 4.5 million barrels per day in the last week.

Weekly Technical Analysis

WTI Weekly Crude for September

trend indicator analysis

The main trend is up according to the weekly swing chart. However, the momentum has been downward since the closing price reversal was confirmed at the end of the week on June 17th.

The secondary trend is down. It changed lower five weeks ago when the sellers took out the minor bottom at $99.66. This shift in momentum is confirmed. The new minor high is $111.14. Trading through this price will shift the secondary trend to the upside and shift the momentum to the upside.

Correction level analysis

The mid-range is $60.99 to $118.08. Its retracement area at $89.54 to $82.80 is the support. This area stopped selling at $88.23 on July 14. It is currently being tested.

The main range is also the range of the contract at $35.00 to $118.08. Its retracement zone at $76.54 to $66.74 is the key area controlling the market’s long-term direction.

On the upside, the nearest resistance is a minor pivot point at $99.23, followed by a short-term retracement area at $102.70 to $106.33.

Weekly Technical Forecasts

The direction of the September WTI Crude Oil market in the week ending August 12th will be determined by the reaction of the trader at the key 50% level at $89.54.

bullish scenario

A sustained movement above $89.54 will indicate the presence of buyers. If this move creates enough bullish momentum, look for a rally to the minor pivot at $99.23, additional resistance coming in at $102.70 to $106.33.

bearish scenario

Continued movement below $89.54 will indicate the presence of sellers. This may lead to a test of the Fibonacci level at $82.80.

Failure to maintain the $82.80 level will put the market in a vulnerable position. This may extend the sell-off into the key retracement area at $76.54 to $66.74. This is the last potential support before the major bottom at $60.99. Trading through this level will change the main trend to the downside.

short term expectations

Just over a week ago, prices were rising on the back of a weak US dollar and bright prospects for US exports to Europe. Now that the bullish jobs data has essentially given the green light for another round of interest rate hikes by the Federal Reserve, the US dollar could resume its bullish trend. A stronger US dollar will reduce foreign demand for dollar-denominated crude oil. This can set a price cap.

Prices can also continue to fall until traders find value. The first value area is $89.54 to $82.80, followed by $76.54 to $66.74.

A tight supply situation will prevent a massive liquidation, but buyers will not step in unless they get their price.

The Fed rate hike is designed to slow the economy and thus the demand for crude oil without causing a recession. Today’s jobs data suggests that the Fed has plenty of room to raise interest rates without causing a recession. Moreover, recent comments from Fed officials suggest that the Fed may not stop until inflation reaches its 2% mandate.

In short, we are looking to cap gains as Fed rate hikes should put pressure on demand. However, we are also looking for a price floor because supply is tight.

Once traders find value at $89.54 – $82.80 or $76.54 – $66.74, crude oil should become range-bound with the supply/demand forces in balance.

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