crude oil futures (CL)

Crude Oil Futures (CL) Bears Could Break Below 118.00 on a “More Hawkish” Fed

  • A more hawkish Fed could dampen demand in the energy market, pushing crude oil futures lower.
  • COVID-19 re-emergence in China could lead to restrictions that would affect demand.
  • OPEC remains confident that demand will be higher than pre-pandemic levels.

Crude oil futures (CL) prices are pushing lower amid fuel demand concerns on Wednesday. Investors are also concerned about the US economy ahead of the FOMC meeting, where the Fed is expected to raise rates by 75 bps. Oil traders and investors are bracing for the big hike as it could lower oil prices.

“An aggressively hawkish signal from the (US) Fed may increase concerns of a global recession, which may dampen the demands of the energy market,” said Leona Liu, an analyst at Singapore-based DailyFX.

Demand concerns have been fueled by the outbreak of COVID-19 in Beijing. This re-emergence is worrying as the world’s second-largest economy has just recently reopened after a lengthy lockdown in Shanghai that disrupted demand for fuel.

The Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast that world oil demand would be higher than pre-pandemic levels in 2022. This news strengthened oil prices shortly before they pushed lower.

“Looking ahead, current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the year’s second half continue to pose a considerable risk to the forecast recovery to pre-pandemic levels,” OPEC said in the report.

OPEC kept this year’s global economic growth forecast at 3.5%, with significant downside and limited upside potential.

Investors will be paying attention to the US crude oil inventory data set to be released later in the day. The forecast is at -1.314M barrels, a drop from the previous 2.025M barrels.

Crude oil futures technical forecast:

Crude oil futures (CL) 4-hour chart
Crude oil futures (CL) 4-hour chart

The 4-hour chart shows a bearish divergence in how the price makes higher highs while the RSI makes lower highs. This divergence shows weakness in the bullish trend and that bears might come in to push the price lower.

The price is currently trading between 123.00 and 118.00 while the RSI is below the 50 level, showing short-term bears are in charge. If bears are strong enough, we could see the price breaking below 118.00, with the next target at around 112.00.