- Surging COVID-19 cases in China may threaten crude oil demand.
- In the short and medium-term, inflationary pressures may weigh on the crude oil price.
- For the remainder of the week, price swings are likely amid the ongoing Russia-Ukraine talks.
The ongoing war in eastern Europe has remained a key driver of crude oil price for over two weeks now. In the current week, ceasefire talks between Russia and Ukraine have heightened volatility in the energy market.
Early on Wednesday, Brent oil bounced off Tuesday’s lows after dropping below $100 for the first time in over two weeks. The benchmark for US oil – WTI futures – has also rebounded from Tuesday’s low of $93.78 to $97.51 as at 02:18 a.m GMT.
Ukraine’s President Volodymyr Zelenskiy indicated that the positions held by both sides in the ongoing negotiations are more realistic. However, in his video address, he added that more time is needed for the talks to bear fruit. For the remainder of the week, the crude oil price will likely be subject to heightened volatility as investors eye the progress of the ceasefire talks.
Crude oil price is also reacting to the fresh COVID-19 lockdowns in China. On Tuesday, the new COVID-19 cases were at 5,280; a figure that is higher than those recorded in the previous day. Amid the surging cases of the highly transmissible Omicron variant, 13 cities are on full lockdown while others are on partial lockdown.
China is the largest importer of crude oil in the world. As such, investors are concerned that the lockdowns may threaten the commodity’s demand.
This comes at a time when the market is skeptical of the ability of the Fed’s interest rate hikes to suppress the inflationary pressures. High energy and food prices have pushed US inflation to a fresh 40-year high at 7.9%.
In the Fed interest rate decision scheduled for release later in Wednesday’s session, investors expect the central bank to hike rates by a quarter of a percentage point. However, inflation will likely remain elevated in the coming months. From this perspective, crude oil prices may remain under pressure as inflation impacts economic growth and lowers the commodity’s demand.
Later in the day, the crude oil price will further react to EIA’s weekly inventory data. Data released by API late on Tuesday showed that crude stockpiles rose by 3.8 million barrels for the week ending on 11th March. At the same time, gasoline inventories dropped by a similar amount.
Crude oil price prediction
Brent oil has eased on its decline after hitting its lowest level in over two weeks on Tuesday. After hitting its highest level since July 2008 at the beginning of the past week, the crude oil price has dropped by close to 30%.
On Tuesday alone, Brent futures declined by close to 7%. It was the first time that it traded below the psychologically crucial level of 100 for the first time since the beginning of March. Besides, that’s the closest it has been to the oversold zone since late December. Earlier in March, it entered the overbought territory and remained in that zone for several sessions as it rose to multi-year highs.
In early Wednesday trade, Brent futures were back above the critical level of 100 at 101.13 as at 02:18 a.m GMT with an RSI of 48. As observed on a daily chart, it remains above the 50-day EMA while trading slightly below the 25-day EMA.
In the short term, the range between the 50-day EMA at 97.51 and the resistance level of 105.78 is worth looking out for. With the further easing of supply concerns, crude oil prices may drop further to find support at around 91.95. On the flip side, a stalemate in Russia-Ukraine talks and/or increased COVID-19 cases in China may yield a bounce-back to 115.