Crude has been one of the raw materials that became more expensive with the post-covid recovery and, above all, after the start of Russia’s invasion of Ukraine. Oil even touched 140 dollars. Now, the situation seems to be reversing, at least in part, given the risk of recession and the fear of a lower demand for oil from China. Such is the situation, that the Brent and West Texas crude oil futures have drawn the ‘death cross’, a technical figure of marked bearish risk in the markets.
This ‘death crossing’ has been brewing for weeks, but it was completed in the last two sessions, which has caused a certain panic in the markets, leading the oil price to fall more than 7% in two days (this Wednesday the correction came to exceed 5%). Brent crude, a global reference, has gone from trading at 95.8 dollars to falling to the area of 88 dollars per barrel.
Oil ‘death crossroads’ begin to form
Joan Cabrero, advisor to Ecotrader, the investment portal of elEconomista, explains that “this week we are very attentive to the evolution of oil, both in its reference West Texas and Brent, every time a bearish graphic pattern could be confirmed, which is, what happens when a slower moving average crosses above a faster moving average, with the 200 SMA with the 50 SMA being the most commonly used combination to track ‘death crosses,'” explains this expert in technical analysis. .
This death cross can be interpreted as a bearish signal that a change is coming within the bullish trend that defined West Texas and Brent since the lows they marked in April 2020, after a full-blown crash. In fact, the last time we were able to observe a ‘death crossing’ in oil was just before the ‘Covid crash’, specifically at the end of January 2020 in the case of Brent and mid-February in the case of West Texas. The crash that followed has already gone down in history, Cabrero comments in an analysis carried out this Thursday.
However, the expert calls for prudence for all those who are hoping for a bigger drop in oil (hoping for relief in their pockets): “To see this ‘crossing of death’ in West Texas confirmed, we should see a weekly close below of 85 dollars and in the case of Brent we need a weekly close below 90 dollars,” says Cabrero.
The expert believes that if that happens, there would be no doubt that the bullish trend would be turning bearish and Brent oil would not find its first support until 80 dollars, which is the base of the channel that has been delimiting the bearish lateral phase of recent months. , with the next support being its objective to assess the area of 65.50 dollars, whose reach would imply a 61.80% Fibonacci correction of all the great rise that took it from 16 to 139 dollars.
“In the case of West Texas, there is no support until $62-67 and the area analogous to Brent’s 65.50 would be found at $53.50 in West Texas. We are talking about falls of the order of 30-35%.” Cabrero sentence. The price of crude oil today is now below the ‘average’ forecasts of organizations such as the US Department of Energy, in this 2022.
Central banking and recession
On the day of this Thursday, crude oil is trading with a little more calm, trying to consolidate the 88.5 dollars per barrel. A more aggressive than expected central bank may have a negative impact on crude oil prices.
Outside of technical analysis, oil faces the policies of central banks, which are raising interest rates at a rapid pace in an attempt to cool demand and bring down inflation. These restrictive monetary policies are detrimental to an oil that depends directly on household and business consumption.
In addition, China, the only great power that is not implementing a restrictive monetary policy, is experiencing its particular crisis, led by continuous confinements due to covid and . It is estimated that around 12% of China’s GDP is in ‘lockdown’.
ING confirms these fears and adds in a morning note that “the most recent weakness in oil prices increases the risk that we will see some type of intervention from OPEC+. The group made it clear that more measures could be taken if they considered it necessary, and the market is probably moving towards levels where they start to get a little bit uncomfortable.”
they have recovered somewhat, but they are still 9.4% lower than last year, while cumulative imports for the first 8 months of the year are down 4.7% compared to the same period of the previous year. The problem is that many of these imports are piling up and not being used, which could affect future demand for crude.
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