Crude Oil Price Update – Momentum Shifts Lower on Recession Fears, Renewed China COVID Worries

U.S. West Texas Intermediate crude oil futures are trading sharply lower on Tuesday as global recession fears escalated following reports of a flare-up in COVID-19 cases in China.

Recession talk moved to the forefront on Monday after World Bank President David Malpass and International Monetary Fund Managing Director Kristalina Georgieva warned of a growing risk of global recession and said inflation remains a continuing problem.

There’s a risk and real danger of a world recession next year,” Malpass said in a dialogue with Georgieva at the start of the first in-person meetings of the two institutions since the COVID-19 pandemic.

At 12:00 GMT, December WTI crude oil futures are trading $88.63, down $1.21 or -1.35%. On Monday, the United States Oil Fund ETF (USO) settled at $73.75, down $1.35 or -1.80%.

In other demand related news, Shanghai and other big Chinese cities, including Shenzhen, have ramped up testing for COVID-19 as infections rise, with some local authorities hastily closing schools, entertainment venues and tourist spots.

Crude oil sellers are also responding to the strengthening U.S. Dollar, which hit multi-year highs on worries about increases to interest rates and escalation of the Ukraine war. A strong greenback tends to weigh on foreign demand for dollar-denominated crude oil.

Daily Swing Chart Technical Analysis

The main trend is up according to the daily swing chart. However, momentum is trending lower following the confirmation of Monday’s potentially bearish closing price reversal top.

A trade through $92.34 will negate the chart pattern and signal a resumption of the uptrend. A move through $75.70 will change the main trend to down.

The main range is $110.78 to $75.70. Its retracement zone at $93.24 to $97.38 is resistance. This area played a role in stopping yesterday’s rally at $92.34.

On the downside, the nearest support is a long-term 50% level at $85.49, followed by a short-term retracement zone at $84.02 to $82.06.

Daily Swing Chart Technical Forecast

Trader reaction to a minor pivot at $89.81 is likely to determine the direction of the December WTI crude oil market on Tuesday.

Bearish Scenario

A sustained move under $89.81 will indicate the presence of sellers. Taking out the intraday low at $87.28 will indicate the selling pressure is getting stronger. This could create the momentum needed to challenge the long-term 50% level at $85.49.

Bullish Scenario

A sustained move over $89.81 will signal the presence of buyers. A move through the intraday high at $90.15 will indicate the buying is getting stronger. If this generates enough upside momentum then look for a surge into $92.34 to $93.24.