Oil Price Fundamental Daily Forecast – Weaker on Fears that Rising Rates Will Push US into Recession

James Hyerczyk
Updated: Nov 21, 2022, 13:40 GMT+00:00

Hawkish comments last week from several Fed officials dampened demand for crude oil and also sparked concerns over the U.S. economic outlook.

WTI and Brent Crude Oil

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U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Monday while hovering just above a two-month low reached on Friday. Worries over the effect of COVID restrictions on China demand and a strengthening U.S. Dollar are the biggest reasons behind today’s weakness.

At 11:30 GMT, January WTI crude oil futures are trading $79.60, down $0.51 or -0.64% and January Brent crude oil is at $86.99, down $0.63 or -0.72%. On Friday, the United States Oil Fund ETF (USO) settled at $69.04, down $1.10 or -1.57%.

Recessionary Fears Bring Uncertainty and Selling Pressure

Hawkish comments last week from several Federal Reserve officials not only gave the greenback a boost, dampening demand for dollar-denominated crude oil but they also sparked concerns over the U.S. economic outlook. Recessionary economic data from the U.K. and Euro Zone also encouraged investors to sell oil.

China COVID Cases Near April Highs

Reuters is reporting that New COVID case numbers in China remained close to April peaks as the country battles outbreaks nationwide and in major cities. Schools in some districts in the capital Beijing switched to online classes on Monday after officials asked residents to stay home, while the southern city of Guangzhou ordered a five-day lockdown for its most populous district.

Three people died over the weekend after contracting COVID, the first deaths from the virus that mainland China has recorded since May, when the city of Shanghai was still locked down.

Beijing city tightened COVID controls heading into the weekend as the local case count rose to several hundred a day, including infections with and without symptoms.

Conditions could be worsening, which could mean China will crack down for a prolonged period of time, leading to more demand destructions.

Rising Rates, Stronger Dollar Weighs on Foreign Demand

Last week was a busy one for Fed speakers with over a dozen Fed officials offering their latest views on the economy, jobs, inflation and current policy settings.

Most policymakers delivered the clearly hawkish message – inflation has not meaningfully softened, more work is needed, and interest rates will stay higher for longer.

Hawkish policymaker comments drove Treasury yields higher as well as the U.S. Dollar. The rise in yields raised concerns about a recession. The strong dollar is making crude oil more expensive for foreign buyers.

Both rising rates and a strong dollar are likely to keep a lid on demand.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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