WTI sheds more than 9% in first two trading days of 2023

As we entered the new year, WTI prices came under significant pressure recording the biggest two-day loss in over three decades, as surging covid cases in China clouded the short-term demand outlook and a hawkish Federal Reserve that wants to push rates higher for longer in order to squash inflation, increases the risk of tipping the US economy into a recession . Moreover, grim warnings by the IMF for a rough year hurt energy traders’ sentiment, since the Fund forecasts recessions across one-third of the global economy. The unscheduled shutdown of a US pipeline late Wednesday, aided at the rebound of WTI prices in today’s session, snapping a two-day losing streak. In this report, we aim to shed light on the catalysts driving WTI’s price, assess its future outlook and conclude with a technical analysis.

IMF’s stark outlook for 2023

On New Year’s Day, the head of the International Monetary Fund, Kristalina Georgieva, delivered a grim global outlook for 2023. The fund’s managing director stated that 2023 is to be “tougher than the year we leave behind” and foresees that one-third of the countries of the global economy will fall victim to recessions. The rationale behind the gloomy outlook is predicated upon, the simultaneous slowdown of economic activity from the world’s three largest powerhouses namely the US, China و Europe, and is being exacerbated by persistent inflationary pressures, high-interest rates, the ongoing war in Ukraine and the uncertainty surrounding China’s exit from covid zero policy. The IMF placed particular emphasis on China’s growth projections and warned that “for the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative” and highlighted that surging infection cases across the country are expected to hurt the economy, impacting growth on the domestic as well as on the international level. The warnings caused energy traders to reconsider their bullish stance against the long-awaited relaxation of the country’s zero covid policy, which was expected to boost crude oil demand from the second largest oil-consuming country.

The unscheduled shutdown of the key pipeline puts a floor under crude’s price

Earlier today, oil prices found support after two sessions of heavy losses, as traders quickly assessed a report issued by Colonial Pipeline, a pipeline operator in the US, declaring that its Line 3 has been shut down for maintenance and it will be inoperable for the next few days. The unscheduled maintenance raised optimism for a short-term rally in oil prices and oil traders will be monitoring closely any further developments in regard to the restart of the pipeline. The operator expects the pipeline to go online during the weekend.

Crude oil inventories buildup

Yesterday, the weekly API crude oil inventories figure pointed to the buildup of -3.3 million barrels in stocks signalling a slack in demand for oil and reflecting the downward trajectory crude prices had this week. Later today the EIA weekly crude oil inventories are expected to record a buildup of 1.15 million barrels according to estimates, higher than the 0.7 million recorded last week. Should the actual figure meet the expectation, we may see the oil prices weaken, paring some of the intraday gains recorded today. Lastly, we would note that last Friday the Baker Hughes oil rig count showed that the number of active oil rigs in the US has dropped by a count of 1 reaching a total of 621.

التحليل الفني

WTI Cash H4

Looking at the مؤشر WTICash 4-hour chart we note the descending trendline initiated on the 1^st of January highlighting the sharp fall of crude oil prices in the first days of 2023, as warnings for a global recession weighed on sentiment. Earlier today WTI found support near the 73.50 (S1) level as a major pipeline in the US was shut down for maintenance. We hold a bearish outlook bias for crude oil prices despite today’s upward move breaking above the descending trendline. The RSI indicator below our chart currently registers a value of 32, recovering from its brief fall below the 30 oversold thresholds and highlighting the extreme bearish sentiment surrounding the commodity. Should the bears regain control, we may see the price action break definitively the 73.50 (S1) support level and move decisively lower towards the 70.50 (S2) support base. Should on the other hand bulls capitalize on the recent spike, we may see the price action break above the 77.00 (R1) resistance level and then move higher towards the 80.00 (R2) resistance level.

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