CRUDE OIL OUTLOOK:
- Crude oil prices fall as US CPI data bolsters bets on a hawkish Fed
- WTI chart support break might expose $100/bbl for a downside test
- Ukraine war news still a wildcard as Russia sanctions impact grows
Crude oil prices continued to fall following the breakneck reversal from 14-year highs. The WTI benchmark extended downward while the US Dollar rose with Treasury bond yields after February’s CPI report put core US inflation at a 40-year high of 6.4 percent.
While this matched baseline forecasts, it nevertheless seemed to instill some further conviction in the Fed’s hawkish intentions. A 25bps rate hike is fully priced in for next week’s FOMC meeting, but the outlook further out is still up for active debate. The Fed Funds futures-implied 12-month rate hike path steepened.
Backwardation eased a bit as well, with the spread between front- and second-month WTI futures narrowing. With no immediate signs of de-escalation in Ukraine, this might reflect cooling demand expectations as markets ponder the restrictive impact of monetary tightening on economic activity.
Looking ahead, the March edition of the University of Michigan survey of US consumer confidence headlines a barebones data docket. It is expected to show sentiment at its weakest in 11 years while one-year inflation expectations hit 5.1 percent, the highest in 14 years. That may embolden hawkish Fed betsfurther.
News-flow from Ukraine remains a wildcard. Moscow still seems to be scrambling to amass as much leverage as possible but growing pain from biting sanctions may soon force an opening for productive negotiations. Kyiv has signaled it is willing to bargain, and market action has suggested a breakthrough would bring fireworks.
CRUDE OIL TECHNICAL ANALYSIS
The WTI contract has slipped below the underside of key resistance-turned-support at 107.68. This may pave the way for extension lower to challenge the $100/bbl figure, with a breakdown eyeing the next immediate barrier just below $96/bbl. Alternatively, reclaiming a foothold above 114.83 may set the stage for an advance to challenge the swing top at 130.50.
Weekly crude oil price chart created using TradingView
CRUDE OIL TRADING RESOURCES
— Written by Ilya Spivak, Head Strategist, APAC for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter
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