US West Texas Intermediate crude oil futures tumbled on Thursday, hitting the lowest point since late March. The move also lowered the market for the week. Crude is also testing an area not visited by OPEC+’s unexpected announcement of a production cut. In essence, one of the main factors behind the drop in oil prices is widespread apprehension surrounding the possibility of an economic downturn.
Earlier in the week, as prices fell, some analysts thought the weakness was attributed to market pricing of OPEC+ production cuts. However, as the selling pressure intensified following a series of bearish indicators, it became clear that traders were pricing in a possible recession and the prospect of lower demand.
Weakening economic activity points signal lower fuel demand
According to the latest data, there has been a moderate increase in the number of Americans filing for new jobless claims, which could indicate a slowdown in the job market. The most recent data on Thursday shows that initial claims in the US rose slightly to 245,000, while the prior week was revised to reflect 1,000 more claims than previously reported.
In addition, a separate report from the Philadelphia Fed showed that factory activity in the mid-Atlantic region fell sharply to its lowest level in nearly three years in April, with area producers expecting activity remain modest for the next six months.
The accommodation…
US West Texas Intermediate crude oil futures tumbled on Thursday, hitting the lowest point since late March. The move also lowered the market for the week. Crude is also testing an area not visited by OPEC+’s unexpected announcement of a production cut. In essence, one of the main factors behind the drop in oil prices is widespread apprehension surrounding the possibility of an economic downturn.
Earlier in the week, as prices fell, some analysts thought the weakness was attributed to market pricing of OPEC+ production cuts. However, as the selling pressure intensified following a series of bearish indicators, it became clear that traders were pricing in a possible recession and the prospect of lower demand.
Weakening economic activity points signal lower fuel demand
According to the latest data, there has been a moderate increase in the number of Americans filing for new jobless claims, which could indicate a slowdown in the job market. The most recent data on Thursday shows that initial claims in the US rose slightly to 245,000, while the prior week was revised to reflect 1,000 more claims than previously reported.
In addition, a separate report from the Philadelphia Fed showed that factory activity in the mid-Atlantic region fell sharply to its lowest level in nearly three years in April, with area producers expecting activity remain modest for the next six months.
The real estate sector in the US is also experiencing similar trends, with existing home sales falling 2.4% to a seasonally adjusted annual rate of 4.44 million units last month, after rising in February for the first time in a year.
These trends are likely related to a year of interest rate hikes by the US Federal Reserve, which has caused fears about a decline in fuel demand. US rate futures currently reflect a nearly 90% chance of a 25 basis point rate hike next month, with a roughly 69% chance of a break in June.
US gasoline inventories unexpectedly rise as implied demand falls
Gasoline inventories unexpectedly rose by 1.3 million barrels to 223.5 million barrels last week, while implied gasoline demand fell 3.9% from Wednesday, according to the US Energy Information Administration report on Wednesday. to the same period last year at 8.5 million barrels per day. Though U.S. crude stockpiles fell by 4.6 million barrels, analysts believe this drop could be temporary, as it is due to a spike in crude export activity that could reverse next week.
Russia’s western oil ports to reach their highest cargo levels since 2019
Commercial and shipping industry sources indicate that oil cargo from Russia’s western ports could hit its highest level since 2019 this April. Additionally, Pakistan has placed its initial order for discounted Russian crude under a new deal, which could include up to 100,000 barrels a day, according to the country’s oil minister.
Crude prices influenced by stock markets after disappointing Tesla results
In addition to fuel demand concerns, crude oil prices are also being impacted by stock markets, which often move in sync with oil prices and have been negatively impacted by disappointing results from Tesla and other companies.
Weekly technical analysis
Weekly June WTI Crude Oil
Analysis of trend indicators
The main trend is up according to the weekly swing chart. However, a new minor high at $83.38 has formed. Taking out the main top closest to $86.40 will reconfirm the uptrend. The main trend will change to down if the selling is strong enough to clear $64.58.
Retracement level analysis
The range of the contract is between $37.04 and $100.48. Its retracement zone at $68.76 to $61.27 is the main support. The market is currently trading above this zone after a successful test of $64.58 the weekend of March 24th.
The short-term range is $86.40 to $64.58. Its retracement zone at $75.49 to $78.06 is currently being tested. Trader reaction to this area could determine the short-term direction of the market.
The new minor range is $64.58 – $83.38. The 50% level at $73.98 is another potential downside target.
The main range is between $100.48 and $64.58. If the uptrend continues, its retracement zone at $85.76–$89.23 will be the main upside target.
Weekly technical forecast
The direction of the June WTI Crude Oil market through the weekend to April 28 is likely to be determined by trader reaction to the short-term Fibonacci level at $78.06.
Bullish scenario
A sustained move above $78.06 will signal the presence of buyers. Overcoming $83.38 will indicate the buying is rallying with the next target of the resistance cluster at $85.76 – $86.40.
Bearish scenario
A sustained move below $78.06 will indicate the presence of sellers. This could trigger a quick break into the short-term 50% level at $75.49 followed closely by a minor pivot at $73.98. Buyers could enter the first test of the support cluster at $75.49 to $73.98. If that fails, look for potential acceleration to the downside.
Short-term prospects
The near-term outlook for crude oil prices is bearish due to fears of a possible recession and lower fuel demand. Weak economic indicators, such as an increase in Americans filing for unemployment and a decline in industrial activity and home sales, suggest a slowdown in the job market and the broader economy.
Additionally, gasoline inventories unexpectedly increased while implied gasoline demand declined, which could put further pressure on crude oil prices.
On the supply side, Russia’s western oil ports are expected to reach their highest cargo levels since 2019 and Pakistan has placed its first order of discounted Russian crude. However, the impact of these developments is likely to be overshadowed by concerns about weakening demand.
Finally, crude oil prices are also influenced by the stock markets after the disappointing results of Tesla and other companies. Therefore, in the short term, crude oil prices may continue to decline.
Technically speaking, trader reaction to the retracement zone at $75.49–$78.06 is likely to set the tone for the market next week. Overall, look for the downside bias to extend below $75.49 and for the upside bias to build again on a sustained move above $78.06.
