West Texas Intermediate (WTI) crude was flat on Tuesday amid a weaker dollar and a retreat in risk sentiment. WTI oil has fallen to a low of $72.31 amid price volatility on Monday, amid a strong risk-off environment triggered by events at Silicon Valley Bank (SVB) and Signature Bank. WTI prices rebounded sharply after the Fed rolled out its support program. After reaching a high near $76 on Monday, WTI oil prices are trading lower again as the U.S. dollar has changed course and is now trading near $73.
The collapse of Silicon Valley Bank shocked the stock market and raised concerns about a new financial crisis. European and American stock markets plummeted across the board, dragging down oil prices significantly. Rising borrowing costs around the world are hurting the financial system and raising concerns about the outlook for economic growth. WTI oil prices are consolidating lower as China's reopening story does not look promising, with the populous country having previously cut its economic growth forecast to 5.0%.
The fallout from the events in Silicon Valley has exacerbated concerns about global economic growth, which the market sees as the first of many problems in the financial system. Businesses are struggling to pay down debt amid rising borrowing costs, which will ultimately slow business demand.
However, the market's expectations that the Fed will slow down the pace of interest rate hikes have increased, and the dollar has recently fallen to a near one-month low, slightly easing the downward pressure on oil prices.
Despite production cuts by the Organization of the Petroleum Exporting Countries (OPEC), WTI oil prices are still struggling to break through the $80 mark.
It is also important to analyze OPEC's stance on low oil prices, as these OPEC countries are faced with the task of keeping oil prices above the desired $80 mark.
In this trading day, we need to pay attention to the API crude oil inventory series data and the OPEC crude oil market monthly report. In addition, we need to pay attention to the US CPI data in February. If the data shows that inflation is sticky, it will put more pressure on the Fed to raise interest rates, and it is still unclear how the rising risk of recession will affect the Fed's tightening policy.
The futures market shows that the market has completely ruled out the possibility of the Fed raising interest rates by 50 basis points next week, with most traders pricing in a 25 basis point hike and a few expecting the Fed to keep rates unchanged.
The oil market has been volatile for the past year due to rising interest rates and has remained subdued so far in 2023. But the growing likelihood of a recession this year has added to near-term pressure on oil prices.
Oil prices are affected by a combination of factors including the U.S. dollar, inflation, OPEC policy and global growth concerns. Looking at all of the factors above, it is difficult to see where oil prices are headed, but the oil market appears to be driven primarily by growth concerns.
WTI oil price key technical level
WTI oil prices fluctuated and fell. Before recovering the 21-day moving average of $76.85, oil prices tended to fluctuate and decline in the market outlook.
At present, it is testing the support near $73.73 under the Bollinger line.
Further stronger support is around the February 6 low of $72.24.
If it breaks further, it may open a midline descending channel. The December 9 low was supported around $70.08.
Since the track of the Bollinger Band is still running close to the level, before falling below the lower track of the Bollinger Band at $73.73, we still need to beware of the counterattack of the bulls.
The initial resistance above is around Friday's low of $74.75.
The 5-day moving average resistance is around $75.46.
The resistance of the 21-day moving average is around $76.85. If this position can be regained, it will weaken the bearish signal in the market outlook.
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