CRUDE OIL OUTLOOK:
- Crude oil prices edge lower in broadly risk-off trade but volatility is muted
- Fed Chair Powell due at Senate hearing, data may signal waningdemand
- Key chart resistance eyed near $80/bbl, support anchored above $75/bbl
Crude oil prices edged lower for a second day consecutive day on Monday, in a move that broadly echoed swings in broader risk sentiment with far less volatility than what appeared on benchmark US equity indices. An initial selloff – seemingly driven by worries about a hawkish Fed – gave way to recovery late into the day.
For the WTI contract, this translated into a loss of 0.85 percent, as compared to a near-term trend average daily swing of about 1.5 percent. Put simply, crude did not have a particularly volatile day. Contrast that with the S&P 500, which fell as much 2.1 percent before an about-face turn that cut the loss to just 0.12 percent.
FED OUTLOOK IN FOCUS ON POWELL HEARING. IS CRUDE DEMAND WANING?
Fed policy speculation is likely to remain at center stage, with all eyes now turning to today’s Senate confirmation hearing for Chair Jerome Powell. The US central bank chief seems likely to stick to an inflation-fighting spirit as officials attempt to talk down stubbornly sticky price growth expectations. That might weigh on oil.
An updated short-term energy outlook report from the EIA as well as the API estimate of weekly US inventory flows are also due to cross the wires. Demand projections have slipped recently even as output bets stabilized after a fall. Meanwhile, refined-product storage has grown even as crude stocks have drained.
On balance, this warns that cooling economic growth and perhaps disruptions linked the Omicron variant of Covid-19 may be crimping end demand. That could filter back upstream as signs of excess supply that weigh on prices. If that begins to show this week alongside hawkish Fed-speak, crude prices seem vulnerable.
CRUDE OIL TECHNICAL ANALYSIS
Prices are hovering near resistance capped at 79.60, with early signs of negative RSI divergence warning that upside momentum is ebbing. This may speak to consolidation, but could also precede a reversal downward. Initial support is anchored at 75.27, with a break below that exposing the congestion area extending down into 72.52. Alternatively, breaking resistance may see extension higher toward the 2021 top at 85.41.
Crude oil price chart created using TradingView
CRUDE OIL TRADING RESOURCES
— Written by Ilya Spivak, Head Strategist, APAC for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter