Wti Prepares For A Plunge Below $81.00 As The Hawkish Fed Trims Growth Projections

Wti Prepares For A Plunge Below $81.00 As The Hawkish Fed Trims Growth Projections

  • Trade Ideas
  • Commodities
  • 2022, 22 September

Brief:

  • Oil prices are expected to tumble further as the hawkish Fed has trimmed growth forecasts.
  • A slippage of oil prices below $82.28 will trigger a downside momentum.
  • The build-up of oil inventories for a third consecutive week by EIA is hinting at a decline in oil demand.

West Texas Intermediate (WTI), futures on NYMEX, are displaying a fragile pullback move after hitting a low of $82.28 in the early European session. The black gold witnessed a steep fall on Wednesday after failing to sustain above the critical resistance of $86.00. The oil prices were offered vigorously after the Federal Reserve (Fed) hiked the interest rates by 75 basis points (bps) consecutively for the third time.

Investors dumped longs in the black gold as Fed’s tightening measures call institutions to trim the growth projections further. The impact on oil prices would have been lower if Fed chair Jerome Powell would have announced a rate hike only. Escalation in terminal rates was in line with the projections of the market. However, the dictation of the strategic plan to fix the ramping up inflation spoiled the market mood.

Fed chair Jerome Powell is seeing interest rates at 4.6% by the end of 2023. The guidance has shifted much higher from 3.8%. Also, the Unemployment Rate is seen higher at 4.1%. Big tasks come with big sacrifices and the economic growth will face severe pain from the pace of hiking interest rates. A decline in economic growth projections will eventually drop demand for oil for a longer period.

Adding to that, the build-up of oil inventories reported by the Energy Information Administration (EIA) adds fuel to the fire. The EIA reported a build of oil stockpiles by 1.142. No doubt, the reading remains lower than consensus but a third consecutive inventory build-up indicates a sheer decline in oil demand.

Suggestion:

Buy above 83.40 for 85.10 and 85.70

Else

Sell below 83.40 for 82.40 and 81.80

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