Oil and conditions that are not very favorable for it

Oil and conditions that are not very favorable for it
Analysis
Ahura Chalki
Author:
Ahura Chalki
Published on: 22.03.2023 17:05 (UTC)
Post reading time: 1.82 min
570

While data shows rising US inventories, fears of weaker demand also increase pressure on Oil prices. 


According to the American Petroleum Institute, released late Tuesday, US crude oil inventories rose by about 3.3 million barrels last week, contrary to the market expectation of about a 1.6 million barrels decrease. If the Energy Information Administration confirms this increase later today, it will be for 12 of the past 13 weeks that inventories have been increased. 


Another data that could not help the energy market sentiment was the European market sentiment data. The ZEW Economic Sentiment Index for the Eurozone and Germany fell short of expectations in March, respectively, to 10 (previously 29.7) and 13 (previously 28.1). In addition, ECB President Christine Lagarde said the Eurozone banking sector is "resilient, with strong capital and liquidity positions." Considering Eurozone inflation which was increasing again, Lagarde's comment means that ECB's focus now is on inflation numbers rather than economic growth, so further rate hikes, which can be a negative sign for stock markets and Energy demand, are more likely. Prices raised by 8.5% in February, and the core inflation rate climbed to 5.6% and is expected to stay high for a long time, so she defended the central bank's decision to keep monetary policy tight.


Moreover, further price weakness followed an unexpected rise in UK inflation. UK CPI was raised by 1.1% in February to increase the annual inflation to 10.4%, while the market expected to see inflation under 10% for the first time since last October. A day before the BoE meeting will increase the pressure on the central bank's MPC to raise the rates, which again will not favor the Oil and, generally, Energy market. 


Moreover, the market participants are now waiting for Fed's Federal Open Market Committee (FOMC) decision on interest rates. Market participants are waiting for a 25 bps rate hike. However, considering the recent banking turmoil triggered by the collapse of two regional banks, some analysts believe that raising interest rates at the current condition would be a big shock for overall financial markets. 


From a technical point of view, it remains bearish, incredibly, as long as it trades under 50-DMA, sitting at $74. We can see the $64 in radars lower than the current price.