Crude Oil Price Update – Mounting Demand Issues Offsetting Tight Supply Situation

U.S. West Texas Intermediate crude oil futures closed lower on Friday and for the week. The selling was relentless last week with the market closing lower 4 out of 5 sessions.

The only bright spot was Wednesday’s better-than-expected government inventories report, but even that wasn’t enough to offset the bearishness fueled by concerns about weakening demand in China, the prospect of further U.S. rate hikes and renewed strength in the U.S. Dollar.

On Friday, January WTI crude oil settled at $80.11, down $1.29 or -1.58%. The United States Oil Fund ETF (USO) finished at $69.04, down $1.10 or -1.57%.

WTI tracked lower for a second straight week, falling 9.13%.

More Potential Downside Risks

For weeks, supply concerns had been propping up prices, but sentiment shifted throughout the week on renewed demand worries, which started with the bearish situation in China as COVID restrictions dampened nearly all hopes for a year-end rally.

Along with more expected rate hikes from the Fed, the weak Chinese demand fueled recession concerns even with the tightening of supply by OPEC+ and the European Union embargo of Russian oil in December.

Additionally, higher interest rates means a stronger U.S. Dollar, which tends to lead to lower foreign demand of dollar-denominated crude oil.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through $74.96 will reaffirm the downtrend. A move through $92.53 will change the main trend to up. This is highly unlikely, however, due to the prolonged move down in terms of price and time, traders should be on the lookout for a possible closing price reversal bottom.

The minor trend is also down. A trade through $89.20 will change the minor trend to up.

The main range is $60.23 to $108.63. The market is currently trading inside its retracement zone at $84.43 to $78.72.

The contract range is $35.98 to $108.63. Its 50% level at $72.31 is the next major downside target and potential support.

Daily Swing Chart Technical Forecast

Trader reaction to the main Fibonacci level at $78.72 is likely to determine the direction of the January WTI crude oil early Monday.

Bullish Scenario

A sustained move over $78.72 will indicate the presence of buyers. If this creates enough upside momentum then look for a possible surge into the main 50% level at $84.43.

Bearish Scenario

A sustained move under $78.72 will signal the presence of sellers. The first downside target is the main bottom at $74.96. If this level fails then look for the selling to possibly extend into the major 50% level at $72.31.