OIL PRICE OUTLOOK: SLIGHTLY BULLISH
- Oil[1] prices plunge on recession fears and reach their lowest level in nearly a month, but the sell-off appears overdone
- Despite the large drop over this past week, tight energy markets, amid structural supply and demand imbalances, create a constructive backdrop for WTI and Brent
- In terms of technical analysis, WTI is hovering above a major rising trendline, extended off the December 2021 lows. If this support holds, prices could rebound in the near-term
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After a strong performance earlier this month, oil[3] prices sold off violently this week, falling sharply along with risk assets including stocks. Heading into the long U.S. weekend (Juneteenth holiday observed on Monday), the West Texas Intermediate (WTI) benchmark was down more than 10% to $$107.7 per barrel for the entire week, its lowest level in nearly a month, weighed down by recession fears. The S&P 500[4], for its part, was on track to lose about 5%[5] over the same period, though downside pressure abated Friday for the equity index.
Investors are growing increasingly worried that the Federal Reserve’s aggressive hiking cycle aimed at curbing inflation, which is running at the fastest pace since 1981, will lead the U.S. economy to a hard landing, a scenario that could significantly undermine demand for commodities.
This past Wednesday, the Federal Reserve raised borrowing[6] costs by three-quarters of a percentage point to 1.50-1.75% and signaled that it will deliver another 150 basis points of tightening this year, a move that will push the federal funds rate above the neutral and into restrictive territory. Restrictive monetary policy at a time of slowing activity will
