Crude oil prices fall due to sour sentiment and growing supply

Crude oil price forecast: neutral

  • The price of oil reacted to the rising recession risks and rising inventories by falling to a 15-month low.
  • US Crude oil (WTI) faces technical support as the banking crisis increases concerns about falling demand.
  • Brent crude remains in oversold territory, with prices ending the week around $73.00.

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Growing recession Risks, bank failures and weakening demand force oil to fall

After a week of chaos, oil prices have returned to the downward trend that drove WTI and Brent crude oil to 15-month lows. With the US banking system under pressure, growing fears of a recession and rising inventories sent oil prices crashing.

For US Crude Oil (WTI), both the weekly API (American Petroleum Institute) and EIA (Energy Information Administration) echoed these concerns. Although both data points crushed estimates, the monthly IEA (International Energy Agency) reported that global supply of oil (including Brent) had risen to an 18-month high.

DailyFX Financial Calendar

Despite the reopening of the Chinese economy and sanctions against Russian oil and gas, inventories have increased. This contributed to the decline, adding to concerns about weakening demand. While Saudi Arabia, Russia and OPEC+ remain poised to further cut production, financial market turmoil continued to weigh on expectations.

In another week of heightened systemic risks, oil prices may be at the mercy of sentiment. The weekly EIA report tells whether the supply has decreased. The interest rate decision by the FOMC and the Fed is likely to pose the biggest threat.

DailyFX Financial Calendar

As oil prices have shown extreme sensitivity to the economic outlook, a higher-than-expected 50-basis rate hike or more bank failures, oil prices may remain vulnerable to further declines.

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After the collapse of SVB and the bailout offered to Credit Suisse and First Republic Bank, news of interest rate hikes or the possible collapse of more banks could force oil lower. With WTI down 12.72% in the past week, the decline at $70.00 has forced prices towards the 200-week MA, which is currently supporting around $66.00.

US Crude Oil Futures (CL1!) Daily Chart

Chart prepared by Tammy DaCosta using TradingView

Similarly, for Brent, a drop below the 50-day MA and below $80.00 helped a weekly decline of 11.57%, forcing prices to hold at $73.00

— Written by Tammy Da Costa, Analyst

Get in touch and follow Tammy on Twitter: @Tams707

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