The price of crude oil has dropped as traders have been losing their appetite for risk due to new concerns about a global recession and a growing Covid-19 outbreak in China, Bloomberg has reported.
“West Texas Intermediate shed more than eight per cent to settle under $96 a barrel for the first time since early April. Rising virus cases in China and looming US inflation data are stoking concerns about demand,” the financial media outlet’s Julia Fanzeres said on Wednesday.
Reuters quoted China’s National Health Commission as saying on Tuesday that 424 new Covid-19 infections were reported for July 11, of which 107 were symptomatic and 317 asymptomatic. “As of Monday, mainland China had confirmed 226,811 cases with symptoms,” Reuters said.
The Wall Street Journal reported: “On Sunday, authorities in Shanghai said the city found its first locally transmitted infection of the omicron subvariant BA5, which had been traced to an earlier imported case.
“Now the dominant strain in the US, it is considered the most infective version yet of Omicron because of its ability to evade immunity built up by previous infections and vaccines.”
Bloomberg’s Fanzeres said: “Crude has fallen since early June on escalating fears the US may be pushed into a recession as central banks hike rates to combat inflation.”
According to US Inflation Calculator: “The annual inflation rate for the US is 8.6 per cent for the 12 months ended May 2022, the largest annual increase since December 1981 and after rising 8.3 per cent previously, according to US Labor Department data published on June 10.”
With inflation worsening, Federal Reserve officials last month agreed they would have to raise interest rates faster and to levels that would slow economic growth, the WSJ reported.
Following the Fed’s rate increase last month, the benchmark federal funds rate is now between 1.5 per cent and 1.75 per cent. Most officials at the meeting expect the rate to rise to between 3.5 per cent and 4.5 per cent next year, with at least three per cent expected this year.
By technical analysis, the price of crude found support in the daily time frame (D1) on the 200-day moving average at $93.50 per barrel and rallied trading around $95 per barrel on Wednesday.
Following these two fundamentals, oil investors may be waiting to sell when the price rallies to the level of $97.5 dollars per barrel by setting the stop-loss function at $105 dollars per barrel and a take-profit at $89.
