Crude Oil Price Update – Choppy Trade as Investors Switch to Demand Concerns

U.S. West Texas Intermediate crude oil futures are edging lower early Monday with traders once again expressing concerns over demand due to renewed COVID-19 restrictions in China and expectations of aggressive interest rate hikes in the United States and Europe.

At 06:08 GMT, October WTI crude oil futures are trading $85.72, down $1.07 or -1.23%. On Friday, the United States Oil Fund ETF (USO) settled at $71.11, up $3.02 or +4.43%.

Today’s early losses are eroding some of Friday’s strong gains that were fueled by a nominal supply cut by OPEC and its allies, and Putin’s threat to cut off energy supplies.

China Oil Demand May Shrink for First Time in 20 Years

Oil demand in China, the world’s biggest energy consumer, could contract for the first time in two decades this year as Beijing’s zero-COVID policy keeps people a home during upcoming holidays and reduces fuel consumption, Reuters reported.

Strong Dollar Expected to Weigh on Crude Demand

The Federal Reserve and the European Central Bank (ECB) are expected to raise rates aggressively in an effort to drive down stubborn inflation. Both moves could lift the U.S. Dollar.

A Fed rate hike would make the U.S. Dollar a more attractive investment, while an aggressive ECB rate hike could drive the Euro Zone into recession, which could also encourage investors to move money into the dollar. A stronger greenback could lead to lower foreign demand because crude oil is a dollar-denominated commodity.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. However, momentum is trending higher, following the confirmation the September 8 closing price reversal bottom.

A trade through $81.20 will negate the chart pattern and signal a resumption of the downtrend. A move through $90.39 will change the main trend to up.

The first minor range is $90.39 to $81.20. The market is currently straddling its pivot at $85.80.

On the downside, the nearest support is another minor pivot at $84.20, followed by a long-term Fibonacci level at $81.85.

On the upside, the nearest resistance is the long-term 50% level at $88.26, followed by a short-term retracement zone at $89.43 to $91.37.

Daily Swing Chart Technical Forecast

Trader reaction to the minor pivot at $85.80 is likely to determine the direction of the October WTI crude oil market on Monday.

Bullish Scenario

A sustained move over $85.80 will indicate the presence of buyers. If this creates enough upside momentum then look for a possible surge into a pair of 50% levels at $88.26 and $89.43. The latter is the last potential resistance before the $90.39 main top.

Bearish Scenario

A sustained move under $85.80 will signal the presence of sellers. This could trigger a break into $84.20. Aggressive counter-trend buyers could come in on the first test of this level, but if it fails then look for a plunge into $81.85, followed by the minor bottom $81.20.