Oil Drops as Demand Destruction Kicks In

  • UKOil
  • USOil


Oil has dropped substantially this week and particularly over the last twenty-four hours. Currently, Brent crude (UKOil) is down around 8.6% for the week and is trading near $84, and WTI (USOil) is down 9.2% for the week to trade near $82.45.

Barrons has reported that Americans are using less gasoline as a reaction to already high prices, whilst the head of JPMorgan's global commodities strategy team, Natasha Kaneva, maintains that "demand restraint from rising oil prices is once again becoming visible in the US, Europe, and some EM countries."

In effect, the already high oil prices are leading to demand destruction. This is being compounded by the rising interest rates, which may dampen economic activity further.

Technical Analysis

FXCM's Brent crude CFD, UKOil, is on the left and its WTI CFD, USOil, is on the right. Both instruments show an uptrend on the weekly chart i.e., both have charted a higher trough (HT), followed by a higher peak (HP). Moreover, both have stochastics that are in their respective upper quintiles (red rectangles). This suggests there is still a strong underlying bullish momentum.

If UKOil drops below $81.93 (green dashed horizontal), and USOil drops below $77.57 (red dashed horizontal), their individual uptrends will have ended. This will be emphasised if their stochastics start dropping too. This will connote that the demand destruction is acting as a counterbalance to the current OPEC+ supply constraints, and the the uptrend will have halted.

Russell Shor

Senior Market Specialist

Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.

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