- WTI has recently fallen to new session lows and is in sight of a test of its 21 DMA ahead of the Fed interest rate announcement.
- Comments on weak demand growth prospects and China shutdowns are being cited as factors weighing on oil.
- However, oil markets appear poised to remain correct for the rest of the year amid OPEC+ production woes.
WTI futures of the first month recently fell to fresh weekly lows of $116.50 and is currently trading down a little over $2 on the day as traders brace for what could be the biggest Fed rate hike in 28 years later in the season. session. US benchmark light sweet oil is looking to test its 21-day moving average, which is currently just above $116, which suggests that for now, while WTI is trading almost $6.0 below previous weekly highs, uptrend remains intact.
As for fundamental catalysts, some cite bearish comments from the International Energy Agency (IEA), which on Wednesday said rising oil prices and a worsening economic outlook are dimming the demand outlook for raw. This week, several Chinese cities have decided to re-impose restrictions as the country continues its efforts to end Covid-19. Meanwhile, the latest US retail sales figures have set off recession alarms.
All of this could be weighing on oil on the day, but WTI continues to receive support from expectations that tight oil market conditions will persist for the foreseeable future. OPEC said earlier in the week that production fell in May despite the cartel’s aim to increase output as some of its smaller members struggle to raise output. Libya is currently in a political crisis that has halted production of around 1 million barrels per day. Meanwhile, Russian production also remains under pressure from Western sanctions over its invasion of Ukraine.
According to one commodity strategist, OPEC+’s recent output slump means oil markets are likely to remain in a deficit of around 1.5 million barrels a day for the rest of the year. This means a further drawdown of already badly depleted oil reserves, supporting the view that oil prices remain in the triple digits.
Technical levels
Source: Fx Street
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