USOIL Supported as Markets Digest Growth & Supply Fears

  • USOil
    (${instrument.percentChange}%)

USOil Analysis

The International Monetary Fund (IMF) slashed its growth projections yesterday, now seeing Global GDP at 3.2% in 2022, from 3.6% in the April forecast. The US economy is now projected to grow by 2.3% this year and China's GDP by 3.3%, from 3.7% and 4.4% previous estimates respectively. [1]

This aggravated fears of a global economic slowdown and most importantly in the world's two largest economies and consumers of oil, as the Fed is widely expected to deliver another outsized rate hike today, which could make a soft landing hard to accomplish.

The oil market however is tight and undersupplied, supporting oil prices, which was highlighted by Tuesday's weekly report by the American Petroleum Institute (API) that showed a big drawdown in crude stockpiles (fall of around 4 million barrels).

Meanwhile the United States will be releasing another 20 million barrels from the Strategic Petroleum Reserve (SPR), as part of the plan that had been announced in Spring and has already led to the sale of more than 125 million barrels. [2]

USOil moves towards the conclusion of its second losing month in a row as prospects of an economic downturn, amidst aggressive monetary tightening policies from most major central banks, create fears of slowing demand.

The current week started on the front foot but it was unable to keep it gains yesterday, as market sentiment soured from the IMF's downgrades, while today it finds support ahead of the Fed.

Its hopes for reclaiming the 100.00 mark remain alive and this could potentially fuel a move to the EMA200 (103.50), but we are cautious about a larger recovery at this stage since the upside looks unfriendly from a technical prospective.

After a three-week negative steak and for as long as USOil stays well below the EMA200, near-term bias is on the downside. As such, there is risk for new monthly lows (90.54), but a larger drop towards and below 86.53 would need a catalyst.

Caution is needed as the commodity tries to form a bottom from the recent slump, but growth fears keep it in a precarious position, while today's Fed decision could impact its trajectory.

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 27 Jul 2022 https://www.imf.org/en/Publications/WEO/Issues/2022/07/26/world-economic-outlook-update-july-2022

2

Retrieved 09 Aug 2022 https://www.whitehouse.gov/briefing-room/statements-releases/2022/07/26/fact-sheet-department-of-energy-releases-new-notice-of-sale-as-gasoline-prices-continue-to-fall/

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