Geopolitics provided a bit of a boost to oil prices in recent months but it is a factor that always fades eventually. It’s no different this time around. And with growing worries surrounding global growth, that is putting added pressure to the outlook for the oil market currently. Not to mention that with so much focus on US data, markets are paying more attention to that factor as well.
WTI crude oil daily chart
The plunge yesterday saw oil move to test $70 and is now trading to its lowest levels for the year. That raises the question, is there more scope for the downside to extend?
The daily chart above shows some minor semblance of a lower highs, lower lows pattern. But I would argue the weekly chart might be more telling for how things could shape up for oil prices going into year-end.
WTI crude oil weekly chart
There has been a flag pattern forming in WTI crude since the middle of last year. And it looks like we might just finally break that alongside the shove below $70. That could accelerate downside pressure based on the technicals, not to mention a death cross between the 100-week (red line) and 200-week (blue line) moving averages.
What about the fundamentals?
Well, OPEC+ looks to be paying for their stubborn approach. And they are likely to stick with the plan to lift output in October. However, the bloc has been too optimistic on the outlook for oil demand and have been needing to keep revising that lower. And the latter is definitely not being comforted by softer data in general across major economies in Q3.
If you take all of that in, there is an argument for oil prices to drop further from here.
But the counterargument is that as oil prices keep lower, central banks will see inflation fears ease as well. And that in turn will allow for rate cuts to come about more smoothly. That will help to provide some support for major economies and help with oil demand growth perhaps. Or at least that is the simple way to look at it.
As such, there is a balance in there to be struck. But if risk trades are under pressure and the market focus remains as what we saw yesterday, the charts certainly are suggesting that it could get worse for oil before it starts to get better.