The slowing demand for oil causes the prices to fall

Oil is trading near the lowest level since September as concerns over China’s swelling Covid cases and aggressive monetary tightening from major central banks weigh on the demand outlook. Federal Reserve officials reiterated their resolve to continue raising interest rates to tame rampant inflation.

  • Futures curve signals rising supply as demand for cargoes slip

  • China’s Covid cases surge, central banks continue rate hikes

Oil was poised for a weekly loss of more than 7% as concerns over a worsening demand outlook filtered through the crude market.

Demand for winter-delivery crude cargoes has slipped from Singapore to Houston, while the forward curve for both major benchmarks has weakened in a sign that supplies are more ample.

“Oil prices can’t shake off a deteriorating short-term crude outlook from the world’s two largest economies,” said Ed Moya, senior market analyst at Oanda Corp. “Energy traders are also scratching their heads as the demand remains soft as the European ban on Russian crude nears.”

Crude oil prices weakened on Thursday, generally following a deterioration in risk appetite as the US Dollar rallied.

An example of the deterioration in sentiment occurred as the United Kingdom outlined fiscal austerity. Chancellor of the Exchequer, Jeremy Hunt, announced a USD 65 billion package of tax hikes and spending reductions to tackle inflation. Then, US initial jobless claims surprised lower, further underscoring the Federal Reserve’s tightening process.

Strong intraday sell signal.

More Fedspeak crossed the wires today. St. Louis Fed President James Bullard noted that 5 – 5.25% is where he thinks the minimum level is for aiming interest rates. Treasury yields and the US Dollar rallied. The stronger Greenback, as well as demand-side implications from the UK fiscal budget, also pressured crude oil.

Crude Oil Technical Analysis

Crude oil prices have confirmed a breakout under an Ascending Triangle chart formation. That has opened the door to a broader downtrend resumption. Immediate support is the 81.207 inflection point. Below the latter is the September low at 76.281. In the event of a turn higher, key resistance seems to be at 85.387.