Oil declines as a sign of a weak economy

Alexander Kuptsikevich FxPro

Oil is losing ground, once again threatening to fall below $80 per barrel WTI, despite a weaker dollar and strong gains in gold and equities. We may be seeing market participants trying to stay within the established pattern, but there’s a good chance that oil is reflecting a turn in the economy to a slowdown.

Oil is giving up ground for the second week, having reversed to the downside from $83.8. This is the development of a sequence of lower local highs since the beginning of 2022. The bulls failed to break through the resistance line despite the Fed's easing signals.

It seems that oil traders read signals of future demand problems in the signals from Powell and other FOMC members rather than anticipation of monetary easing. Oil is very sensitive to fluctuations in demand, and a 1-2% change in the supply-demand balance can change the price by tens of percent.

The latest Baker Hughes report saw a further decline in drilling activity, with the number of active oil rigs falling to 478 (-1 for the week) - a new low since December 2021 and another reminder that current prices do not inspire investment in production expansion, only maintaining the status quo.

On the other hand, oil has failed to develop an offensive but has yet to break crucial support. Since last February, the price has been reversing to the upside after declines towards the 200-week moving average. The last attempt to break below was in early June. As a result, a sequence of higher local lows was formed.

Thus, the oil price is being squeezed into a vice. Signals of slowing US economic growth, while Europe and China are still unable to move to accelerate their own growth, are not supporting demand.

Because of the economic signals, we see higher risks that the price will break out of this two-year consolidation. However, it has yet to pass a crucial test in the form of the 200-week MA (now at $77). All along, OPEC+ has come to the oil rescue by cutting production. Whether that will be the case this time is the big question.

Author

Alexander Kuptsikevich

FxPro

Alexander Kuptsikevich, a senior market analyst at FxPro, has been with the company since its foundation. From time to time, he gives commentaries on radio and television. He publishes in major economic and socio-political media.

EUR/USD holds losses below 1.1850 near nine-day EMA barrier

EUR/USD extends its losses for the second successive session, trading around 1.1840 during the early European hours on Tuesday. The 14-day Relative Strength Index momentum indicator at 53 (neutral) signals consolidation with a modest upside lean.

GBP/USD drops below 1.3600 after weak UK jobs report

GBP/USD is seeing a fresh selling wave, giving up the 1.3600 level in Tuesday's European trading. The United Kingdom employment data showed worsening labor market conditions, bolstering bets for a BoE interest rate cut next month. This narrative is weighing heavily on the Pound Sterling.

Gold adds to intraday losses as risk-on mood offsets dovish Fed and subdued USD demand

Gold attracts some follow-through selling for the second straight day and dives to over a one-week low, around the $4,858 area, heading into the European session on Tuesday. The commodity, however, quickly recovers to the $4,900 mark as traders opt to await more cues about the US Federal Reserve's (Fed) rate-cut path before placing fresh directional bets.

Pi Network rallies ahead of its first anniversary

Pi Network trades above $0.1800 at the time of writing on Tuesday, recording nearly 5% gains so far. On-chain data indicate that large wallet investors, commonly known as whales, have accumulated approximately 4 million PI tokens over the last 24 hours.

The week ahead: Key inflation readings and why the AI trade could be overdone

It is likely to be a quiet start to the week, with US markets closed on Monday for Presidents Day. European markets are higher across the board and gold is clinging to the $5,000 level after the tamer than expected CPI report in the US reduced haven flows to precious metals.

Stellar mixed sentiment caps recovery

Stellar price remains under pressure, trading at $0.170 on Tuesday after failing to close above the key resistance on Sunday. The derivatives metric supports the bearish sentiment, with XLM’s short bets rising among traders and funding rates turning negative.