Why Traders Started Dumping Crude

U.S. West Texas Intermediate crude oil futures are trading lower on Friday shortly after the release of a strong U.S. nonfarm payrolls report that suggests the U.S. is not in recession and that the Fed should continue on its aggressive course of raising rates.

Prices came under pressure this week as traders worried about inflation’s impact on economic growth and demand, but tight supply kept prices bottoming.

Price action throughout the week indicated that traders are taking the threat of recession much more seriously – meaning demand will suffer, but today’s US jobs report hui suggests that the economy may not be heading in that direction. Furthermore, it could mean that investors will shift their attention back to a market facing tight supply and producers unable to change that.

Rising rates worry bulls

After rising slightly last week on concerns over tight supply, prices have fallen significantly this week on renewed concerns over too much supply due to low fuel demand. Falling demand for fuel is correlated with rising interest rates which is slowing global economic growth.

If the correlation between rising interest rates and falling fuel demand continues, prices could fall further as major central banks are expected to keep raising rates until at least September and possibly until September. at the end of the year.

Rising U.S. rates are helping to support the U.S. dollar, and…

U.S. West Texas Intermediate crude oil futures are trading lower on Friday shortly after the release of a strong U.S. nonfarm payrolls report that suggests the U.S. is not in recession and that the Fed should continue on its aggressive course of raising rates.

Prices came under pressure this week as traders worried about inflation’s impact on economic growth and demand, but tight supply kept prices bottoming.

Price action throughout the week indicated that traders are taking the threat of recession much more seriously – meaning demand will suffer, but today’s US jobs report hui suggests that the economy may not be heading in that direction. Furthermore, it could mean that investors will shift their attention back to a market facing tight supply and producers unable to change that.

Rising rates worry bulls

After rising slightly last week on concerns over tight supply, prices have fallen significantly this week on renewed concerns over too much supply due to low fuel demand. Falling demand for fuel is correlated with rising interest rates which is slowing global economic growth.

If the correlation between rising interest rates and falling fuel demand continues, prices could fall further as major central banks are expected to keep raising rates until at least September and possibly until September. at the end of the year.

Rising US rates help support the US dollar, and since crude oil is a dollar-denominated asset, foreign demand is falling. The assessment comes just a week after Russia’s shutdown of a key oil pipeline to Europe pushed U.S. crude oil exports to a record high.

Too little demand leads to too much supply

Data released by the U.S. Energy Information Administration (EIA) showed U.S. crude inventories rose 4.5 million barrels last week against expectations of a drawdown of 630,000. barrels.

Gasoline inventories rose 163,000 barrels over the weekend of July 29 against expectations of a drop of 1.61 million barrels.

Distillate inventories, which include diesel and fuel oil, fell 2.4 million barrels during the week to 109.3 million barrels, compared with an expected increase of 1 million barrels, according to data from the EIA.

Surprisingly, net crude imports increased by 2.21 million bpd, according to the EIA. In the prior week, US crude oil exports hit a record high last week, contributing to a further drop in inventories, driven by foreign demand due to US crude’s steep discount to the international benchmark Brent.

The drop in inventories last week was largely the result of an increase in crude exports to a record 4.5 million barrels per day in the past week.

Weekly technical analysis

September WTI Crude Oil Weekly

Analysis of trend indicators

The main trend is up according to the weekly swing chart. However, the momentum has been trending lower since the confirmation of the reversal in top closing prices for the week ending June 17th.

The minor trend is down. It turned lower five weeks ago when sellers pulled out the minor low at $99.66. This confirmed the change in dynamics. The new minor high is $111.14. A trade through this price will change the minor trend to the upside and shift the momentum up.

Retracement level analysis

The middle range is $60.99 to $118.08. Its retracement zone at $89.54 to $82.80 is support. This zone stopped selling at $88.23 on July 14th. It is currently being tested.

The main range is also the contractual range of $35.00 to $118.08. Its retracement zone from $76.54 to $66.74 is the main zone controlling the long-term direction of the market.

On the upside, the closest resistance is a minor pivot at $99.23, followed by a short-term retracement zone at $102.70-$106.33.

Weekly Technical Forecast

The direction of the September WTI Crude Oil market over the weekend ending August 12 will be determined by the reaction of traders to the main 50% level at $89.54.

Bullish scenario

A sustained move above $89.54 will indicate the presence of buyers. If this move creates enough upward momentum, look for a rally in the minor pivot at $99.23, further resistance will be seen between $102.70 and $106.33.

Downside scenario

A sustained move below $89.54 will indicate the presence of sellers. This could lead to a test of the Fibonacci level at $82.80.

A failure to hold $82.80 will put the market in a weak position. This could extend selling into the major retracement zone at $76.54 to $66.74. This is the last potential support before the main low at $60.99. A trade through this level will change the main downtrend.

Short-term outlook

Just over a week ago, prices rallied on the back of a weaker US dollar and good prospects for US exports to Europe. Now that the bullish jobs data has essentially given the green light to another round of aggressive rate hikes from the Fed, the US Dollar may resume its bullish trend. A stronger US dollar will lead to lower foreign demand for dollar-denominated crude oil. This could limit prices.

Prices could also continue to fall until traders find value. The first zone of value is $89.54 to $82.80, followed by $76.54 to $66.74.

The tight supply situation will prevent a massive sell-off, but buyers will only step in if they get their price.

Fed rate hikes are designed to slow the economy and therefore demand for crude oil without causing a recession. Today’s jobs data suggests the Fed has plenty of room to raise rates without causing a recession. Moreover, recent comments from Fed officials suggest that the Fed may not stop until inflation reaches its 2% mandate.

In summary, we are looking to cap gains as Fed rate hikes are expected to put pressure on demand. However, we are also looking for a bottom price as the supply is tight.

Once traders find value at $89.54 – $82.80 or $76.54 – $66.74, Crude should be range bound as the forces of supply and price rise. demand balance each other out.

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