Oil prices have continued their downward trajectory, primarily driven by escalating concerns regarding the deterioration of global economic expectations. This bearish sentiment was amplified on Wednesday, as West Texas Intermediate (WTI) crude oil futures plummeted to a new low of $56.70 per barrel, marking its lowest level since January 2021. The recent imposition of a substantial 104% tariff by the United States on Chinese commodities has further exacerbated the global uncertainty surrounding the ongoing trade conflict between the world's two largest economies and, notably, the two largest consumers of oil. This trade dispute has cast a dark cloud over the prospects for global economic growth, consequently dampening the outlook for oil demand. The decline in oil prices has now persisted for five consecutive trading days, initiated by the United States' announcement of mutual customs duties the previous week. The bearish momentum in the oil market shows no signs of abating, fueled by growing anxieties about the detrimental impact of the escalating trade war and the recent decision by the Organization of the Petroleum Exporting Countries and its allies (OPEC+) to proceed with increased production. This decision to boost output, despite the weakening demand outlook, has provided a strong tailwind for the bears oil prices.
The sole positive note amidst this otherwise bleak scenario was the unexpected decline in US crude oil inventories, as indicated by the American Petroleum Institute (API) report released on Tuesday. This drawdown in crude stockpiles suggested a potential increase in oil demand within the United States, which, under normal circumstances, might have provided some support to prices. However, the overwhelming negative sentiment stemming from the trade war and production increase overshadowed this positive data point, preventing it from having a significant impact on halting the price decline. From a technical analysis perspective, the daily chart for oil futures is exhibiting a clear downward trend, reinforcing the prevailing bearish expectations in the short term. The market is currently showing signs of oversold conditions, which might typically suggest the possibility of a sharp corrective rebound. However, in the current environment, such a reaction is more likely to signal a temporary pause before a continuation of the downward movement, indicating the underlying strength of the bearish sentiment. Initial resistance levels are identified at $60.00 and $60.40 per barrel. For any bullish momentum to be considered sustainable and to negate the current declining bias, a decisive break and sustained trading above the ideal resistance zone of $62.50 to $63.00 would be necessary. On the downside, the next significant target for the bears is $53.87, which aligns with the 61.8% Fibonacci retracement level of the previous upward move from $6.52 to $130.48. Beyond this, the psychologically important level of $50.00 remains a key point of interest.
