USOIL: 3-month trendline breached! Will it break ?

USOIL prices are once again pressured by stagflation concerns, which have sent stocks and yields down during the week. After the Fed’s major interest rate hike last week, USOil prices are down more than 5% this week following the Fed Chair Powel testimony.

Fed Chair Powell did not really say anything new in his testimony to the Senate Banking Committee in the first leg of his required Monetary Policy Report to Congress. Treasuries were in rally mode all session amid haven demand and as the Chair continued to stress the Fed is “strongly committed” to bringing down inflation and that restoring price stability is “absolutely essential.” The big question is whether the Fed can accomplish this without causing a recession.

Meanwhile, the weaker than expected Eurozone PMI reports added to expectations of a broad downturns in global growth. Recession fears have led to a rally in bonds and the correction in growth expectations is also leaving traders to correct demand expectations for oil, which has capped prices for now. European gas prices, meanwhile, a rising, with TTF up 7.30% on the day nearly 10% over the week, amid growing concern that Russia is throttling supplies now in order to prevent countries from filling storage levels ahead of the winter.

Hence in general the uncertainty over the overall economic outlook against the background of aggressive central bank action will likely continue to underpin volatile and jittery market moves. In the longterm however, prices remain far up on the levels seen last year as Russia’s invasion of Ukraine and sanctions against Moscow make for tight physical markets. Supply and demand imbalances are likely to keep prices underpinned well into next year although in Europe, concern over gas shortages are trumping oil price jitters for now, as Russia throttles supply and governments struggle to find alternative suppliers. For now this look OK, but there are mounting concern that a cold winter could lead to supply shortages in Europe, which would further add to recession risks.

Currently the USOIL extended declines for nearly 10 consecutive days, to $101.50 area, retesting 3-month trendline. In the medium, the sharp decline below 50-day EMA, along with the bearish turn of MACD lines rise concerns whether the USOIL outlook has turn negative term, indicating more bearish bias in the near term. The RSI is at 38 but flat, backing the bearish outlook in the medium term , but contracting it at the same time for the intraday picture.

Key Support levels for the asset if it manages to extend declines below this ascending trendline that has been identifies since the beginning of the year, could open the doors to the confluence of the 200-day EMA and year’s support at $93.70-94.00. Further decline from the latter could bring $85.00-$87 into attention. To the flipside, 50-day EMA holds as a key resistance level for the asset, as a turn of USOIL above the $111.00 area could indicate the breach of year’s peak again..

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Andria Pichidi

Market Analyst

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