WTI crude oil prices hit December 2021 lows on Wednesday as markets continued to be weighed down by banking concerns, with a three-day rout finding support near the $66 mark. The short-term relief came on Thursday after a backup plan was introduced in response to Credit Suisse's deteriorating financial situation. Following the collapse of Silicon Valley Bank (SVB), Credit Suisse was the next to address its liquidity problems, sending its shares tumbling.
Credit Suisse said on Thursday it would borrow up to $54 billion from the Swiss National Bank to boost its liquidity and investor confidence after a plunge in its share price fueled fears of a global financial crisis.
WTI crude oil prices fell at the start of the week amid a sudden shift in global financial conditions, driven by historically high borrowing costs. A drop in oil prices is inevitable as investor optimism about growth prospects through 2023 fades.
"With the banking crisis spreading from the U.S. to Europe, market sentiment has deteriorated... Future trends will depend on the level of market anxiety, even if the fundamentals don't necessarily show much," Haitong Futures analysts said in a note. Bearish sign."
Investors are scaling back risky assets such as oil and stocks and rushing to buy bonds in a risk-off environment as the outlook for global growth weakens.
The U.S. Energy Information Administration (EIA) reported that crude inventories rose by 1.55 million barrels last week, more than expected, adding to pressure on crude prices. It was the 11th increase in inventories in the past 12 weeks.
Russia's oil exports fell by more than 500,000 bpd in February, the International Energy Agency (IEA) said in a commentary on Wednesday. Global oil inventories have risen to about 7.8 billion barrels, the highest since September 2021, pointing to a slowing pace of oil consumption. Despite the pessimistic outlook for global growth, the International Energy Agency has raised its forecast for global oil demand in 2023 to 102 million bpd from 100 million bpd.
The resumption of air travel and the reopening of China's economy are expected to boost oil demand, according to a monthly report from the International Energy Agency (IEA) on Wednesday. But concerns about oversupply remain. Commercial oil inventories in OECD countries have reached an 18-month high, while Russia’s oil output remained close to pre-war levels in February despite sanctions on its seaborne exports, the International Energy Agency said in a report.
In the short to medium term, WTI crude oil prices may be driven by risk sentiment, and the downward trend remains unchanged.
In this trading day, attention should be paid to the European Central Bank’s interest rate decision, news related to the European and American banking crisis, changes in the number of Americans filing for unemployment benefits, and the import price index.
CME's latest crude oil trading data
Taking into account the latest data from the Chicago Mercantile Exchange Group's crude oil futures market, the open interest of crude oil resumed its momentum on Wednesday, increasing by about 20,600 contracts, quickly reversing the previous day's decline. Volume rose to its highest level since Feb. 24, 2022 at 1.752 million contracts, the third straight day of gains.
Oil prices fell below the $66 mark on Wednesday for the first time since December 2021. The surge in open interest and trading volume amid the sharp drop in oil prices opened the door to further short-term declines. Oil prices should fall further towards the December 2021 low of $62.46 (Dec 2). However, the indicator is close to oversold, suggesting that oil prices may rebound in the near term.
WTI Oil Price Technical Analysis
Technical factors caused WTI crude oil prices to fall sharply.
On Tuesday, crude oil prices fell below the key $73.00 support level.
The December 2022 low was also broken below the $70.00 mark on Wednesday.
The charts show clearly oversold conditions, but so far, there is no immediate sign of stopping. The next strong support level is around $66.00 - $66.20.
The mid-line target refers to the position near the low of $62.43 on December 2, 2021, and there is also some support near the low of $64.43 on November 30, 2021.
The initial resistance above is around the intraday high of $68.75, with focus on resistance around $70.08.
If this position can be regained quickly, it is necessary to beware of the possibility of oil price shocks bottoming out. For further resistance, refer to the position near the low of $72.24 on February 6.
Resistance at the Feb. 22 low is near $73.79.
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