Oil tumbles as volatile trade continues

Oil trades 6% lower

Oil prices are trading over 6% lower at the start of the week, adding to 5% losses from the previous week, the oil still trades up over 15% since the start of the month. The price briefly dropped below $100, trading a $10 range in the sign that volatility in the oil market isn’t going anywhere

Whilst fears over supply shortages sent oil prices to a 14 year high of $130 last week, as the US banned Russian imports, the prices quickly pared those gains on news that Europe wouldn’t be following suit. This was significant because Russian oil accounts for 27% of European oil and just 4% of US oil. The supply gap that needs to be filled is significantly smaller than had Europe also banned Russian oil.

Peace talks

Optimism surrounding peace talks which are taking place today between Russia and Ukraine has also helped pull the oil price lower. A diplomatic solution to the Ukraine crisis and a ceasefire could see supply concerns ease.

In the meantime, the oil markets are looking out to see which oil-producing nation could fill the supply gap. There are several contenders including Venezuela, Iran, UAE and or Saudi Arabia, although nothing has been confirmed.

China’s lockdown

Another big driver of oil prices at the start of the week has been the rising COVID cases and lockdown restrictions in China, which is hurting the demand side of the equation. China continues to operate a strict zero COVID policy which means as cases have risen to a two-year high lockdown restrictions are back in force. China placed 17.5 million people in the city of Shenzhen back under lockdown and banned traveling within the Jilin province in the first example of China shutting off a completed region since April 2020.

Fed rate hike

Rising oil prices have added to growing inflation concerns which are forcing central banks to adopt a more hawkish tine. This week the Fed will announce its monetary policy decision and is widely expected to hike interest rates by 25 basis points to tame 4-decade high inflation. Rising interest rates could prompt expectations of slower growth and keep oil prices under pressure.

Where next for oil prices?

Oil price trades within a rising channel dating back to the end of 2021, before breaking out to 129.29 and then rebounding lower.

The price has broken down back into the rising channel, finding support at 98.00 the daily low. The bearish crossover on the MACD suggests that there could be more downside to come. Today’s low at 98.00 is now an immediate support ahead of 94.70 a level which offered resistance a couple of times across February.

Meanwhile, buyers may look towards the bullish cross-over on the 50 & 100 sma and long lower wick on the candle which suggests that the price failed to find acceptance at the lower levels before buyers re-entered the market, pushing the price higher. Buyers will be looking for a move over 108.50 Friday’s high before bringing 115 back into focus.