Crude oil prices threatened by Powell’s hearing and falling demand …

(MENAFN- DailyFX) CRUDE OIL OUTLOOK:

  • Crude oil prices have declined slightly in broadly risk-free trading, but volatility is moderate
  • Fed Chairman Powell expected at Senate hearing, data could signal lower demand
  • Key chart resistance is around $ 80 / b, support is anchored above $ 75 / b

Crude oil prices edged down for a second day in a row on Monday, in a move that largely echoed swings in broader risk sentiment with far less volatility than was seen on benchmark U.S. stock indexes. An initial liquidation – apparently prompted by concerns about a hawkish Fed – gave way to a late-afternoon rally.

For the WTI contract, this translated to a loss of 0.85%, compared to a short-term average daily trend of around 1.5%. Simply put, crude didn’t have a particularly volatile day. Compare that with the S&P 500, which fell as much as 2.1% before an about-face that reduced the loss to just 0.12%.

THE FED’S PERSPECTIVES ARE FOCUSED ON THE POWELL HEARING. IS GROSS DEMAND FALLING?

Speculation over Fed policy is expected to remain center stage, with all eyes now turning to today’s Senate confirmation hearing for President Jerome Powell. The head of the US central bank appears likely to stick to an inflation-fighting spirit as officials attempt to rebut stubbornly sticky price growth expectations. It could weigh on oil.

An updated report on the EIA’s near-term energy outlook as well as the API’s estimate of weekly US inventory flows are also expected to intersect. Demand projections have slipped recently even as production bets have stabilized after a fall. Meanwhile, the storage of refined products has increased even as crude stocks have depleted.

Overall, this warns that slowing economic growth and perhaps disruptions related to the Omicron variant of Covid-19 could dampen final demand. This could filter upstream as signs of oversupply weighing down prices. If this starts to appear this week alongside the hawkish rhetoric from the Fed, crude prices appear vulnerable.

CRUDE OIL TECHNICAL ANALYSIS

Prices are hovering near the resistance capped at 79.60, with the first signs of a negative RSI divergence warning that bullish momentum is faltering. This may indicate consolidation, but could also precede a downturn. Initial support is pegged at 75.27, with a break below this level exposing the area of ​​congestion extending up to 72.52. Alternatively, tensile strength could see a higher extension towards the 2021 high at 85.41.

Crude Oil Price Chart Created Using TradingView

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— Written by Ilya Spivak, Chief Strategist, APAC for DailyFX

To contact Ilya use the comments section below or @IlyaSpivak on Twitter

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Felix J. Dixon