Oil Price Forecast: Longs Trimming Positions Following Bleak Outlook for Global Economy
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower early Tuesday after posting a lackluster performance the previous session. The price action suggests traders are waiting for the next catalyst that will definitively drive the market either sharply higher or sharply lower.
It seems that over the last month bullish and bearish traders have flip-flopped over what real force is moving the market. Some days it’s the European embargo of Russian energy products. Other days it’s the COVID lockdowns in China or the lifting of these restrictions. Traders are also monitoring the low U.S. gasoline stockpiles just ahead of the start of the summer driving season.
So it doesn’t come as a real surprise that today, Reuters is reporting that oil prices are easing in the early trade on Tuesday because of concerns over a possible recession and weaker consumption.
These two factors are apparently outweighing expectations of tight global supply and a pick-up in fuel demand in China after Beijing’s promises of stimulus. Or the very factors that drove prices to their highest level since March 9 just last week.
At 03:57 GMT, July WTI crude oil is trading $109.79, down $0.50 or -0.45% and July Brent crude oil is at $112.85, down $0.57 or -0.50%. On Monday, the United States Oil Fund ETF (USO) settled at $81.98, up $0.33 or +0.40%.
Business and Government Leaders at Davos Warn of Numerous Threats to Global Economy
Multiple threats to the global economy topped the worries of the world’s well-heeled at the annual Davos think-fest on Monday, with some flagging the risk of a worldwide recession, Reuters reported.
“We have at least four crises, which are interwoven. We have high inflation… we have an energy crisis… we have food poverty, and we have a climate crisis. And we can’t solve the problems if we concentrate on only one of the crises,” German Vice Chancellor Robert Habeck said.
“But if none of the problems are solved, I’m really afraid we’re running into a global recession with tremendous effect… on global stability,” Habeck said during a WEF panel discussion.
The early price action this week suggests the buying has certainly slowed. And the technical picture is starting to show weakness. Furthermore, we’re not seeing a willingness by buyers to chase the market higher. This typically indicates a market that is too expensive given the current supply/demand situation.
Currently, the higher-top, higher-bottom chart pattern remains intact, but all it is going to take is a break down through the WTI bottom at $103.24 and the Brent bottom at $105.70 to trigger another move under $100 per barrel.
Despite the dire outlook from the experts at Davos, IMF Managing Director Kristalina Georgieva, speaking in Davos on Monday, said the financial mood has clearly “darkened”, but she is not yet expecting a recession.
But when asked whether she expected a recession, Georgieva said: “No, not at this point. It doesn’t mean it is out of the question.”
The current price action in crude oil indicates long traders would rather trim positions on the mere mention of recession rather than wait for the economic data to confirm it.