Oil prices fell for the fourth straight week, settling slightly above $70.00 per barrel (at 70.5 at the time of writing), as bears remain in control of the market (which means that sellers are outweighing buyers). The decline is driven by growing fears of a U.S. recession and its adverse effects on cyclical commodities, combined with the U.S. debt ceiling impasse, according to Reuters.
While the U.S. is not yet in recession, market indicators, such as the inversion of the yield curve, suggest that one could arrive soon. The recent turmoil in the U.S. banking sector has reinforced downside risks, increasing the likelihood of a downturn later this year. A recession in the U.S., which has the world’s largest GDP, could severely curtail global growth, reducing demand for fossil fuels and having a detrimental impact on oil prices.
Read more: Amid anticipation of interest rate decisions, oil prices continue to decline
The U.S. debt ceiling debacle is making matters worse for energy commodities. If the country’s borrowing cap is not raised soon, a default could occur in a matter of weeks, triggering catastrophic consequences for the economy and the financial system, experts observed. While Democrats and Republicans will most likely reach a deal, markets may convulse and fall off the cliff before an agreement is reached.
According to analysts and experts, the current environment suggests that oil prices will continue to remain subdued, potentially leading to more losses in the near future. They advise that traders should closely monitor headlines and market conditions to avoid being caught on the wrong side of the trade.
The West Texas Intermediate (WTI) oil is currently sitting above trendline support near the $70.00 mark after experiencing recent losses. However, experts warn that the bulls need to defend this floor to prevent a deeper decline toward $66.00.
Alternatively, if prices rebound from current levels, an initial resistance is expected at $72.00. A successful move above this barrier could pave the way for a rally toward $73.75, followed by $76.50.
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