Crude Oil used to be very bullish early this year, with the conflict in Ukraine sending US WTI surging higher to $130, where we saw a reversal in June, as consumer inflation kept surging and central banks picked up the pace of interest rate hikes. The recession became inevitable for the global economy where we’re still heading, while the US economy already went into a recession.
As a result, risk sentiment turned negative which kept risk assets bearish, while the demand for Oil also declined, despite OPEC cutting production. So, Prices were bearish until late September, when US WTI crude Oil bottomed just above $76, as UK gilt yields surged. But, the sentiment started improving with the intervention by the Bank of England and the Bank of Japan, stopping the crash in these two currencies.
Since then the sentiment has improved in financial markets, as central banks start to slow down the tightening policy and inflation starts to give signals of slowing down. This has improved the sentiment since early October and we have seen a rally in risk assets and commodities.
US WTI Oil Daily Chart – Bouncing Off the 50 SMA
The 100 SMA acting as resistance at the top
But, the 00 SMA (green) turned into resistance for Oil on the daily chart above and we saw a reversal. This past week, crude Oil had an interesting week, with three days of significant losses followed by a bullish resurgence at the end of the week. The demand concerns came back early this week, as China announced lockdowns in certain districts such as the city of Guangzhou, a manufacturing hub in Southern China, while Chongqing, a city of around 30 million, moved to tighten measures on Thursday morning in two districts. US EIA inventories came in better than expected, which was a drag on Oil prices, sending them back below the $90/barrel level.
But, the 50 SMA (yellow) held as support and after a doji candlestick on Thursday which is a bullish reversing signal, Oil jumped back up on Friday. That was a positive sign, but Oil failed the rally that most other risk assets went through on Wednesday afternoon after the US CPI inflation report was released, which was softer than expected. So, we’re getting mixed signals from Oil, although we’ll see if it will push higher above the 100 SMA this week. If it does, then that would be a bullish signal.
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