The German ZEW was the latest report to send recession fears through the commodities markets, knocking Crude Oil $7 lower, back below the psychological $100 level in WTI Crude Oil. The headline print was -53.8 vs an expectation of -38.3 and a June print of -28. This was the lowest level since December 2011. The Current Conditions component of the ZEW for July was -45.8 vs -34.5 expected and -27.6 in June. The ECB will be raising rates at its July meeting, it is just a question of “by how much?”. At the last ECB meeting, the Committee committed to a 25bps hike, however some are speculating it may be 50bps. Worse data combined with rate hikes are leading to fears of a slowdown throughout Europe, which would decrease the demand for oil. Lower demand means lower prices.
The other main factor causing lower oil prices recently is the continued fluidity of the coronavirus situation in China. China continues to maintain a zero-Covid policy. Therefore, China continues to lockdown cities when Covid cases are on the rise. Many areas in Shanghai have gone back under lockdown or placed under restrictions, as the city has seen cases rise to the highest level since May. Macau went under lockdown for a week, forcing casinos to close their doors. Even Wungang City is under lockdown for 3 days after just 1 positive Covid case was discovered. These lockdowns are contributing to fears of a global slowdown or even recession.
After attempting to test the March 8th highs, WTI Crude Oil reversed and moved lower. Crude could only get as high as 123.66 on June 14th. Oil then began falling, and last week it reached a low of 95.13. just beneath the 50% retracement level from the lows of December 2nd, 2021 to the highs of March 8th, as well as, horizontal support. Crude then bounced into horizontal resistance near 105.09 and began falling again. Today Crude Oil is testing the recent lows from last week. At the time of this writing, oil is down $7, below 96.50.
Source: Tradingview, Stone X
On a 240-minute timeframe, US OIL has been moving lower in an orderly channel since June 14th. Crude Oil is approaching last week’s low of 95.09, as well as the previously mentioned 50% retracement level and horizontal support. If price can break lower, then next level is a confluence of support at the bottom trendline of the channel and horizontal support between 92.50/92.96. Below there, price can fall to the 61.8% Fibonacci retracement level from the recently mentioned timeframe at 88.04! However, if support holds, first resistance is at the lows of July 11th near 100.88. Above there price can move to the July 8th highs at 105.09, then the top trendline of the channel near 108.00.
Source: Tradingview, Stone X
The German ZEW and the continued on again/off again lockdowns in China are contributing to fears of a global slowdown or recession. As a result, the perception of a lack of demand is causing WTI Crude Oil to move lower. If the recession fears continue, watch for Crude oil to move lower.