WTI crude oil has dropped to $72.5 per barrel, slightly breaching the lows from June this year, marking the lowest price level since February. The declines from Friday and today have broken the upward trend line. Maintaining current levels might indicate the formation of a double low pattern, with a neckline around $84 per barrel. However, taking into account current fundamentals, the full formation of the pattern is practically impossible. Nevertheless, a technical rebound to around $78 per barrel cannot be ruled out.
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Recession Fears? What Does This Mean for Oil?
The magnitude of movements in the stock market can provide insights into the actual risk of a recession. On the other hand, if we look at the commodities market, significant movements are not observed today. However, some markets, such as oil and industrial metals, have long indicated a persistent recession risk, primarily related to the situation in China. Meanwhile, the market is now concerned about recession risks due to significant weakening in the US labor market and the unwinding of yen-financed carry trades.
The unemployment rate in the US has risen to 4.3%. During previous recessions, we observed a similar rebound in the unemployment rate. The Fed might already be late with rate cuts, which is why the market has started to price in a high probability of a 50% cut. To calm the market, clear communication from the Fed is needed, indicating that data is in line with expectations and the economy remains strong.
Source: Bloomberg Finance LP, XTB
As seen, oil is losing about 1.5% today, which is not unusual considering the movements in the stock market, particularly in Asia. However, it is worth noting that oil has dropped by about 8% since Thursday, following a previous rebound driven by increased geopolitical risk. Currently, geopolitical risk has less impact on oil prices, although a significant reaction from Iran to recent events could change the situation. Additionally, it is important to note that the US is currently in hurricane season. This could lead to reduced production in the Gulf, but the greater risk now appears to be reduced fuel production and decreased exports, which is already seen as negative for prices.
This content has been created by XTB S.A. This service is provided by XTB S.A., with its registered office in Warsaw, at Prosta 67, 00-838 Warsaw, Poland, entered in the register of entrepreneurs of the National Court Register (Krajowy Rejestr Sądowy) conducted by District Court for the Capital City of Warsaw, XII Commercial Division of the National Court Register under KRS number 0000217580, REGON number 015803782 and Tax Identification Number (NIP) 527-24-43-955, with the fully paid up share capital in the amount of PLN 5.869.181,75. XTB S.A. conducts brokerage activities on the basis of the license granted by Polish Securities and Exchange Commission on 8th November 2005 No. DDM-M-4021-57-1/2005 and is supervised by Polish Supervision Authority.
