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Oil prices at nine-month lows on recession fears: Could they rally from here?

By Angela Barnes

14:09, 27 September 2022

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In this article:
Oil - Brent
Brent Oil
87.02 USD
2.01 +2.370%
Oil - Crude
Crude Oil
80.71 USD
1.69 +2.140%
GBP/USD
GBP/USD
1.20566 USD
0.01005 +0.840%

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Illustration of the oil markets showing an oil pump on the background of stock charts
Crude oil prices made some gains on Tuesday after hitting lows not seen since January on Monday – Photo: Getty

Oil prices clawed back some losses in early trade on Tuesday with supply concerns weighing on the minds of traders - after crude futures fell to a nine-month low the day before.

Brent crude oil price chart

Brent crude futures for November rose by $1.17 to $85.23 a barrel, while US West Texas Intermediate (WTI) crude futures for November delivery were up $1.13 to $77.84 a barrel.

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US crude oil price chart

On Monday, Brent crude futures for November slipped to $84.51 a barrel, its lowest since 14 January, while WTI dropped to $77.21 a barrel, its lowest since 6 January.

The downward price pressure has come from a surging dollar (USD) - which makes the US-priced commodity more expensive for buyers using other currencies.

Moreover, there’s mounting concerns that rising interest rates will trigger a global recession curtailing fuel demand.

 

Will OPEC step in to boost oil prices?

The gains on Tuesday, however, are likely a result of oil supply concerns after Iraq’s oil minister said on Monday that the Organization of the Petroleum Exporting Countries (OPEC) is monitoring the price situation and wants to maintain market balance. In other words, they could cut production again on 5 October to boost oil prices - or even intervene sooner.

The group has been trying to keep crude above $90 a barrel, recently cutting output by 100,000 barrels per day.

However, the cut has been too minimal to have the desired impact on the market.

Natural Gas

6.97 Price
-4.680% 1D Chg, %
Long position overnight fee 0.0486%
Short position overnight fee -0.0751%
Overnight fee time 22:00 (UTC)
Spread 0.005

Gold

1,767.72 Price
+1.070% 1D Chg, %
Long position overnight fee -0.0060%
Short position overnight fee 0.0024%
Overnight fee time 22:00 (UTC)
Spread 0.18

Silver

22.14 Price
+4.100% 1D Chg, %
Long position overnight fee -0.0060%
Short position overnight fee 0.0022%
Overnight fee time 22:00 (UTC)
Spread 0.020

Oil - Crude

80.71 Price
+2.140% 1D Chg, %
Long position overnight fee -0.0095%
Short position overnight fee -0.0042%
Overnight fee time 22:00 (UTC)
Spread 0.03

There’s also price support for oil with the pending European Union sanctions banning Russian seaborne crude, which is set to start in December - stoking supply concerns. Moreover, G7 countries are still pushing for a Russian oil price cap, which would also tighten supply.

However, EU countries are still reportedly divided on agreeing to the price cap.

Crude oil prices - will the downward trend continue?

Piero Cingari, chief market analyst at Capital.com, highlighted how oil has fallen 40% since its March peak, but said  its performance has been remarkably resilient given the current market conditions.

“The United States is desperately selling barrels from its strategic oil reserves, which fell to the lowest level since 1984. A Covid lockdown and an economic downturn occurred in China and Europe has most likely already entered a recession. Despite these extreme bearish pressures, WTI oil trades at twice its 40-year average of $40/bbl.

“We are still dealing with uncertainties in this market, and OPEC+ has become much more hawkish in cutting production. There is also much more cohesion among the countries in the cartel to stick with the decisions,” he said.

Photo – US EIA

 

Cingari further noted that oil prices might still face some downside pressure given the economic backdrop. However,  he said the bad news seems to have been largely factored into the market already.

“Technically, the daily RSI briefly entered oversold territory on September 26 for the first time since December 2021. In the prior case, the daily RSI falling decisively below 30 provided a strong bullish signal for the beginning of the WTI uptrend in the first quarter of 2022,” Cingari added.

Photo – Piero Cingari, Capital.com / Trading View

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