Crude Oil Price Update – Under Pressure as Fed Rate Hike Raises Demand Concerns

U.S. West Texas Intermediate crude oil futures are trading lower on Thursday as traders continue to digest the impact of the U.S. Federal Reserve’s rate hike on future demand although tight supply curtailed the selling pressure.

At 10:17 GMT, August WTI crude oil is trading $113.03, down $0.06 or -0.05%. On Wednesday, the United States Oil Fund ETF (USO) settled at $86.86, down $1.59 or -1.80%.

Demand Worries to Fuel Short-Term Weakness before Rebounding

Prices retreated on Wednesday after the Federal Reserve raised its key interest rate by 0.75%, the biggest hike since 1994. The Fed’s intention is to slow down the economy, which could lead to lower demand especially if aggressive rate hikes cause a recession.

The price drop is not expected to last very long and is likely just a correction in a bull market. Optimism that China’s oil demand will rebound as it eases COVID-19 restrictions is one supportive factor. Also providing support are comments from the International Energy Agency (IEA) calling for demand to rise further in 2023, growing more than 2% to a record 101.6 million bpd.

Tight Supply Keeping Bull Market Intact

Bullish investors remained focused on tight supplies as Western sanctions restricted access to Russian oil. Furthermore, in Libya, oil output has collapsed to 100,000-150,000 barrels per day (bpd), a spokesman for the oil ministry said on Tuesday, a fraction of the 1.2 million bpd seen last year.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower. A trade through $120.88 will signal a resumption of the uptrend. A move through $100.66 will change the main trend to down.

The minor trend is down. This is controlling the momentum. The next target is a minor bottom at $108.94.

On the upside, potential resistance is a pair of pivots at $113.41 and $114.91. On the downside, the primary target is a retracement zone at $110.77 to $108.38.

Daily Swing Chart Technical Forecast

Trader reaction to $113.41 is likely to determine the direction of the August WTI crude oil market on Thursday.

Bearish Scenario

A sustained move under $113.41 will indicate the presence of sellers. If this generates enough downside momentum then look for the selling to possibly extend into the short-term 50% level at $110.77. If this fails then look for a move into the short-term Fibonacci level at $108.38.

The Fib level at $108.38 is a potential trigger point for an acceleration to the downside with a minor target at $105.94, and the major target at $100.66.

Bullish Scenario

A sustained move over $113.41 will signal the return of buyers. This could trigger a move into a pivot at $114.91, followed by another minor pivot at $116.47. This is the last potential resistance before the $120.88 main top.