CRUDE OIL OUTLOOK:
- Crude oil prices drop with stocks as FOMC minutes feed inflation debate
- Wall Street index futures warn that deeper losses are in the cards ahead
- Technical positioning hints WTI may fall to challenge the $60/bbl figure
Crude oil prices fell as investors’ mood broadly soured across global financial markets yesterday. The benchmark WTI contract tellingly fell alongside the bellwether S&P 500 stock index, a proxy for overall risk appetite. The move seems to reflect growing concerns about inflation, and the policy response to it.
Minutes from April’s FOMC meeting revealed that central bank officials are cautiously mulling earlier stimulus withdrawal than they’ve previously conceded. This follows higher-than-expected CPI, PPI and wage inflation readings in recent weeks.
In fact, investors have been concerned about a sticky upshift in the cost structure for some time, with market-based measures of inflation expectations pushing upward. That has played out in tandem with realized results on price growth data increasingly outperforming relative to economists’ baseline forecasts.
Looking ahead, a relatively thin offering on the economic docket may leave current trends intact. That bodes ill for crude oil prices. Indeed, futures tracking Wall Street averages are pointing conspicuously lower ahead of the opening bell even as shares rise in European trade.
Tellingly, contracts on the tech-tilted – and thus credit-sensitive – Nasdaq index are suffering outsized losses while cash-rich Dow Jones equivalents are nearly flat, with the catch-all S&P 500 straddling the middle ground. That may be flagging inflation and the follow-on Fed policy pivot as the worries du jour.
CRUDE OIL TECHNICAL ANALYSIS
Crude oil prices turned lower as expected, taking another step toward the formation of a bearish Double Top chart pattern. From here, a daily close below swing low support at 60.61 exposes the formation’s neckline at 57.25. Breaching that would complete the topping setup, implying a move below $47/bbl to follow.
Neutralizing near-term selling pressure probably demands a breach above the $66-68/bbl zone, confirmed on a daily closing basis. From there, the 38.2% Fibonacci expansionat 70.37 and the 50% threshold at 74.42 approximate subsequent layers of resistance.
Crude oil price chart created using TradingView
CRUDE OIL TRADING RESOURCES
— Written by Ilya Spivak, Head Strategist, APAC for DailyFX
To contact Ilya, use the comments section below or @IlyaSpivak on Twitter