Oil Faces the Winds of the US Economic Slowdown

Black gold prices fell on Thursday, weighed down by disappointing economic indicators in the United States.

Actually, the latter revived fears of a global recession, even if investors still expect that the reopening of China will stimulate consumption.

Retail Sales and Producer Price Index (PPI) figures fell more than expected in December in the United States, according to monthly data released on Wednesday:

The US dollar index was also suffering from those weakening figures, as it is still evolving within its downtrend channel towards the next quarterly pivot support S1 I mentioned several times (see this article, written about one month ago), as the 2022's last quarter's pivot support S2 left its place to S1 on this new 2023's first quarter — the $100 mark — which is also a strong psychological level :

U.S. Dollar Currency Index (DXY), daily chart

On the black gold side, many investors took the opportunity of the disappointing US economic figures to take some profits, which notably triggered the recent drop in oil prices.

On Wednesday, the International Energy Agency (IEA) slightly raised its forecast for global oil demand in 2023 thanks to the Chinese recovery in its monthly report.  According to the IEA, it should exceed 100 million barrels per day (MB/d), an increase of nearly 2 MB/d, with China accounting for half of the increase:

U.S. API Weekly Crude Oil Stock

U.S. API Weekly Crude Oil Stock

On the other hand, the American Petroleum Institute (API) released its weekly figures, showing that crude stocks had increased by almost 8 million barrels last week, and those of gasoline by almost 3 million barrels:

United States API Gasoline Stocks

Beware of the contract rolling into March on futures:

WTI Crude Oil (CLH23) Futures (March contract, daily chart)

The next important figures to be published today will be those from the EIA!

Do you think they will align with the above ones? What do you expect from a significant increase in crude inventories?

Sebastien Bischeri,
Oil & Gas Trading Strategist