Crude Oil Price Update – Demand Worries Rise after Higher PPI Data Raises Chances of Recession

U.S. West Texas Intermediate crude oil futures are trading flat shortly after the release of a hotter-than-expected producer price inflation (PPI) report on Friday. The data could send U.S. Treasury yields and the U.S. Dollar higher.

Traders are monitoring the movement in the U.S. Dollar since it is likely to respond to the figures that could influence the Fed’s interest rate decision at next week’s 2-day meeting. A stronger greenback tends to weigh on foreign demand for dollar-denominated crude oil.

At 14:20 GMT, January WTI crude oil futures are trading $71.65, up $0.19 or +0.27%. The United States Oil Fund ETF (USO) is at $62.86, up $0.15 or +0.24%.

Traders Dealing with Demand and Supply Issues

The U.S. producer prices index (PPI) rose slightly more than expected in November amid a jump in the costs of services, according to a report from the U.S. Labor Department. The data may encourage the Federal Reserve to step on the gas on interest rate hikes, furthering fears of a looming recession. This would not be good for crude oil demand.

In other news, an outage at TC Energy’s Keystone pipeline could affect inventories at a key U.S. storage hub and cut crude supplies to two oil-refining centers, analysts and traders said.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $71.12 will signal a resumption of the downtrend. A move through $83.34 will change the main trend to up.

The minor trend is also down. A trade through $75.44 will change the minor trend to up. This will shift momentum to the upside.

Crude oil is currently testing a major retracement zone at $72.31 to $63.73. This area is also considered a value zone so we could see some counter-trend buying. Don’t expect a major rally to begin unless a support base is built, however.

Daily Swing Chart Technical Forecast

Trader reaction to the major 50% level at $72.31 is likely to determine the direction of the January WTI crude oil market on Friday.

Bearish Scenario

A sustained move under $72.31 will signal the presence of sellers. This could lead to a quick test of this week’s low at $71.12.

Taking out $71.12 will signal a resumption of the downtrend. Prices could go into a freefall since there isn’t any major support until the long-term Fibonacci level at $63.73.

Bullish Scenario

A sustained move over $71.12 will signal the presence of buyers. If this generates enough upside momentum then look for a surge into the minor top at $75.44. Overtaking this level will change the minor trend to up and could extend the rally into a Fibonacci level at $78.72.