Oil Gains Capped By Lackluster Industrial Data From China

U.S. West Texas Intermediate crude oil futures are trading lower late in the session on Thursday as traders fear the aggressive rate hiking campaigns by several major central banks will drive down demand by pushing the global economy into recession.

A stronger U.S. Dollar also contributed to the weakness by making the dollar-denominated asset more expensive for foreign buyers. The dollar strengthened on Thursday a day after the U.S. Federal Reserve said it expected interest rates higher for longer. Safe-haven buying tied to a huge sell-off in U.S. equity markets also gave the greenback a lift.

Higher US Dollar Weighs after Fed's Hawkish Tone

Federal Reserve Chair Jerome Powell on Wednesday said that the U.S. central bank will raise interest rates further next year, even as the economy slips towards a possible recession.

Powell's hawkish tone helped lift the U.S. Dollar. A stronger greenback can weaken oil demand because it makes the dollar-denominated commodity more expensive for foreign buyers.

Higher interest rates can also push the economy into recession which would lead to lower fuel demand.

Oil Prices Pressured by Weaker Data from China

Overnight, a pair of economic reports from China came in much weaker than expected, further deepening concerns over global demand and recession.

According to Reuters, the world's second-biggest economy lost more momentum as factory output slowed and retail sales extended declines, both missing forecasts and clocking their worst readings in six months as COVID-19 cases surged.

Pipeline Resuming Operations

Overnight weakness is also being attributed to the news that Canada's TC Energy Corp said it is resuming operations in a section of its Keystone pipeline, a week after a leak of more than 14,000 barrels of oil in rural Kansas triggered the whole pipe's shutdown.

More Bearish News

The Energy Information Administration (EIA) said on Wednesday that U.S. crude oil stockpiles rose by more than 10 million barrels last week, the most since March 2021. Finally, Goldman Sachs on Wednesday reduced its oil forecasts for 2023, citing a projected market surplus early next year as supply from Russia remains robust and China demand ramps up.

Weekly Technical Analysis

Weekly February WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. A move through $91.19 will change the main trend to up. A trade through $60.05 will reaffirm the downtrend.

The minor trend is also down. A trade through $83.27 will change the minor trend to up. This will also shift momentum to the upside.  

Retracement Level Analysis

The contract range is $36.16 to $106.51. Its retracement zone at $71.34 to $63.03 is the next major downside target and value zone.

The minor range is $83.27 to $70.31. Its pivot at $76.79 is the nearest resistance.

The short-term range is $91.19 to $70.31. Its retracement zone at $80.75 to $83.21 is additional resistance.  

Weekly Technical Forecast

The direction of the February WTI crude oil market the week-ending December 23 is likely to be determined by trader reaction to the minor pivot at $76.79.

Bullish Scenario

A sustained move over $76.79 will signal the presence of buyers.  If this move creates enough upside momentum then look for a surge into the short-term retracement zone at $80.75 to $83.21.

Overtaking $83.27 will shift momentum to the upside and could trigger an acceleration to the upside with $91.19 the next major target price.

Bearish Scenario

A sustained move under $76.79 will indicate the presence of sellers. If this move creates enough downside momentum then look for the selling to possibly extend into the support cluster at $71.34 to $70.31.

A failure to hold $70.31 could trigger an acceleration to the downside with $63.03 the next major target price.  

Short-Term Outlook

The major support remains the long-term retracement zone at $71.34 to $63.03. However, there is still a lot of resistance before the trend changes to up. Any attempt to rally from current price levels is likely to be a labored event.

Fundamentally, any news is going to have to be bullish enough to offset recession and lower demand fears. Concerns over a global recession are growing and aren't likely to stop unless the Fed starts to talk about pausing its rate hike plans. And that isn't very likely, given the hawkish tone from Fed Chairman Powell last Wednesday.

With the Christmas and New Year's holiday's coming up, volume is expected to come in well below average. This makes the market vulnerable to volatile price swings. It's unlikely that any major change in trend will take place before the new year.