The benchmark U.S. February WTI crude oil futures index closed lower for a fifth consecutive session on Thursday, completing a lower close for the week. The market was higher earlier in the day following the closure of a major crude oil pipeline between Canada and the United States. However, those gains were erased as traders focused on fears that global economic slowdowns would reduce demand for fuel.
Keystone Pipeline Shutdown Provides Quick Support
Canada’s TC Energy said it shut down its 622,000 barrel-per-day Keystone pipeline after a spill in a Kansas creek, Reuters reported.
Oil prices rose after the company announced the shutdown, but the rally dissipated as analysts noted the U.S. Gulf would likely have enough inventory to handle near-term outages.
According to Reuters, several analysts have also said that the section of the line that goes to refiners in the Midwest could be restarted soon. TC Energy has not announced when the pipeline will reopen.
Many factors weighing on prices this week
Basically, traders are attributing this week’s selloff in part to an increase in US gasoline and distillate inventories. Fear of a recession and worries about Fed rate hikes are also weighing on sentiment. The week started off on the wrong foot for the bulls when OPEC+ decided not to cut production.
Uncertainty about how the Russian oil ban should work could be another reason traders are liquidating long oil positions.
Recession fears raise demand concerns
The…
The benchmark U.S. February WTI crude oil futures index closed lower for a fifth consecutive session on Thursday, completing a lower close for the week. The market was higher earlier in the day following the closure of a major crude oil pipeline between Canada and the United States. However, those gains were erased as traders focused on fears that global economic slowdowns would reduce demand for fuel.
Keystone Pipeline Shutdown Provides Quick Support
Canada’s TC Energy said it shut down its 622,000 barrel-per-day Keystone pipeline after a spill in a Kansas creek, Reuters reported.
Oil prices rose after the company announced the shutdown, but the rally dissipated as analysts noted the U.S. Gulf would likely have enough inventory to handle near-term outages.
According to Reuters, several analysts have also said that the section of the line that goes to refiners in the Midwest could be restarted soon. TC Energy has not announced when the pipeline will reopen.
Many factors weighing on prices this week
Basically, traders are attributing this week’s selloff in part to an increase in US gasoline and distillate inventories. Fear of a recession and worries about Fed rate hikes are also weighing on sentiment. The week started off on the wrong foot for the bulls when OPEC+ decided not to cut production.
Uncertainty about how the Russian oil ban should work could be another reason traders are liquidating long oil positions.
Recession fears raise demand concerns
Top executives from the biggest U.S. banks are bracing for a worsening economy next year as inflation threatens consumer demand, Reuters reported. The news helped push up demand for the safe-haven U.S. dollar, which weighed on foreign demand for dollar-denominated crude oil.
JPMorgan Chase & Co chief executive Jamie Dimon told the CNC: “These things could very well derail the economy and cause this mild to severe recession that people are worried about,” he said.
Bank of America CEO Brian Moynihan told investors at a Goldman Sachs financial conference that the bank’s research showed “negative growth” in the first part of 2023, but contraction would be ” light”.
Goldman Sachs CEO David Solomon added: “Economic growth is slowing. When I talk to our customers, they seem extremely cautious.
Lower US Crude Inventories; Fuel stocks after major construction – EIA
U.S. crude inventories have fallen over the past week while gasoline and distillate inventories have seen big increases as oil refiner utilization hit its highest level since 2019, it said on Wednesday. the Energy Information Administration (EIA).
The EIA reported a drawdown of 5.2 million barrels in crude inventories. Traders were looking for a drawdown of 3.5 million barrels.
It was potentially bullish news, but the government also reported that US distillate inventories rose by 6.2 million barrels, far beating estimates of a 2.2 million barrel increase. Gasoline inventories rose 5.3 million barrels against expectations for an increase of 2.7 million barrels.
China eases anti-COVID rules in major policy shift
China on Wednesday announced the most sweeping changes to its tough anti-COVID regime since the pandemic began three years ago, easing rules that curbed the spread of the virus but had hobbled the world’s second-largest economy and sparked protests .
On paper, the news is potentially bullish, but price action suggests that this move may not be enough to significantly dent the demand picture.
Tanker issues could be helpful
Reuters reports that Western officials are in talks with their Turkish counterparts to resolve tanker queues off Turkey after the G7 and the European Union put in place new restrictions on December 5 targeting exports of Russian oil. Their source is a British Treasury official.
“The UK, US and EU are working closely with the Turkish government and the shipping and insurance sectors to clarify the implementation of the oil price cap and reach a resolution. “, the official told Reuters.
“There is no reason for ships to be denied access to the Bosphorus Strait for environmental or health and safety reasons.”
This is a potentially bullish development as it could prevent oil from reaching the market in a timely manner, leading to supply bottlenecks.
Weekly technical analysis
February WTI Crude Oil Weekly
Analysis of trend indicators
The main trend is down according to the weekly swing chart. A move to $91.19 will change the main uptrend. A trade at $60.05 will reaffirm the downtrend.
The minor trend is also down. A trade at $83.27 will change the minor uptrend. This will also shift the momentum up.
Retracement level analysis
The contract range is $36.16 to $106.51. Its retracement zone from $71.34 to $63.03 is the next major downside target and value zone.
The minor range is $83.27 to $71.27. Its pivot at $77.27 is the closest support.
Weekly Technical Forecast
The direction of the February WTI Crude Oil market the week ending Dec. 16 will likely be determined by how traders react to the long-term 50% level at $71.34
Bullish scenario
A sustained move above $71.34 will signal the presence of buyers. If this move creates enough upward momentum, look for a push into the minor pivot at $77.27.
Breaking above $77.27 will indicate that the short cover rally is gaining strength. This could trigger an acceleration towards the minor high at $83.27.
Downside scenario
A sustained move below $71.34 will signal the signal that the selling pressure is building. This will put the market in a position to challenge the Fibonacci level at $63.03.
Short-term outlook
Bearish fundamentals may force traders to look at the technical chart. The market is able to test key value areas between $71.34 and $63.03.
Aggressive counter-trend buyers could step in to stop the price drop when testing these areas. They may try to form a support base, which would be a bullish development.
This week’s dip comes as a surprise due to favorable news from China. China, the world’s largest crude importer, announced the most sweeping changes to its anti-COVID regime since the pandemic began on Wednesday. This comes on top of news that the country’s crude oil imports in November rose 12% from a year earlier to their highest level in 10 months.
The wild card this week will be the Federal Reserve’s interest rate decision on December 14th. Traders expect the Fed to raise its benchmark rate by 50 basis points. However, no one knows how high the Fed will raise rates and how long they will keep raising them.
Traders fear that the Fed will overshoot its targets and push the economy into recession, which would be negative for crude oil demand.
