As the world’s top investment manager and financial market journalist, I am closely monitoring the recent developments in the oil market. Oil prices are once again at risk of falling below $80 per barrel WTI, despite a weaker dollar and strong gains in stocks. This could be a sign of a potential economic slowdown on the horizon.
Over the past two weeks, oil has been on a downward trend, with prices reversing from $83.8. This pattern of lower local highs since the start of 2022 is concerning, especially as the bulls have failed to break through resistance levels despite signals of monetary easing from the Federal Reserve.
Oil traders seem to be interpreting signals of future demand issues from Powell and other FOMC members, rather than just anticipating monetary policy changes. The recent Baker Hughes report showing a decline in drilling activity further highlights the lack of investment in production expansion at current prices.
On the flip side, oil has yet to break crucial support levels, indicating a potential rebound. However, with slowing US economic growth and stagnant growth in Europe and China, demand for oil remains uncertain.
The current situation has squeezed oil prices into a tight spot, with the potential for a breakout from the two-year consolidation. The key test will be the 200-week moving average at $77.
OPEC+ has historically intervened to stabilize oil prices by cutting production. Whether they will do so again remains uncertain.
In conclusion, the oil market is at a critical juncture, with economic signals pointing to higher risks of price fluctuations. Investors should closely monitor developments in the coming weeks to make informed decisions about their portfolios.