Crude oil prices are knocked down by sour sentiment and rising supply

Crude oil price forecast: neutral

• Oil prices are responding to rising recession risks and higher inventories by falling to 15-month lows.
• US Crude (WTI) drops to tech support as a banking crisis heightens concerns about lower demand.
• Brent crude remains in oversold territory with prices closing out the week around $73.00.

Increasing recession Risks, bank failures and lower demand expectations are forcing oil prices lower

After a week of chaos, oil prices have resumed the downtrend that pushed WTI and Brent oil to 15-month lows. With the US banking system under strain, mounting recession fears and rising inventories caused oil prices to plummet.

For US Crude (WTI), both the weekly API (American Petroleum Institute) and the EIA (Energy Information Administration) echoed these concerns. While both data points crushed estimates, the monthly IEA (International Energy Agency) reported that global oil supply (including Brent) had risen to its highest level in 18 months.

DailyFX economic calendar

Despite the reopening of the Chinese economy and sanctions against Russian oil and gas, stocks have increased. This added to the bearish move, raising concerns about declining demand. While Saudi Arabia, Russia and OPEC+ remain willing to cut production further, financial market turmoil continued to dampen expectations.

In another week of heightened systemic risk, oil prices could be at the mercy of sentiment. While the weekly MER report indicates whether the supply has been reduced. the FOMC and the Fed’s interest rate decision are likely to be the biggest threats.

DailyFX economic calendar

As oil prices have proved extremely sensitive to the economic outlook, a higher-than-expected rate hike of 50 basis points or more banks going bankrupt, oil prices may remain vulnerable to further declines.

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Following the collapse of SVB and the lifeline provided to Credit Suisse and First Republic Bank, news of further interest rate hikes or the possible collapse of more banks could lower oil prices. With WTI losing 12.72% over the past week, a downside break of $70.00 has forced prices towards the 200-week MA, currently with support around $66.00.

US Crude Oil Futures (CL1!) Daily Chart

Chart prepared by Tammy Da Costa using TradingView

Similarly for Brent, a drop below the 50-day MA and below $80.00 aided an 11.57% weekly decline, forcing prices to support at $73.00

— Written by Tammy Da Costa, Analyst for DailyFX.com

Get in touch and follow Tammy on Twitter: @Tams707