Oil price under pressure as recession fears loom

[MongiIG]

Oil markets are now looking at the potential downside effect from recession. We look at both Brent and US crude as tradable opportunities on the short side.

 Jeremy Naylor | Writer, London | Publication date: Friday 18 November 2022

Brent down

Brent crude looks happy below $90 a barrel as traders consider the effects of a slowdown around the world.

As we heard on Thursday this week from the Chancellor of the Exchequer, the UK economy is almost certain now to be in a recession. Recession is technically speaking two consecutive quarters of negative growth or contraction is a better way of putting it.

But many expect that to continue into next year as well in the UK. Other northern hemisphere economies could well go into recession, potentially Germany, France, Italy. There are other economies that are big oil users that could well end up dipping down into recession. And what this does is it restricts the amount of demand out there.

Add to this China, which continues to show signs of a slowdown, and the fact the US Federal Reserve (Fed) continues to pile the pressure on with increased monetary policy and indeed that's what's happening at the Bank of England (BoE), the European Central Bank (ECB) as well, adding to this pressure that's been brought to bear on the oil price.

Brent chart

Let's take a look at where we are. This is Brent.

First of all, as I said, happy below the $90 a barrel level. In fact, we're at $88 at the moment. I brought this Fib on here from the lows, we had back on the 26th of September. We're in this sort of area of support at the moment.

But the way the chart is looking and the candle is looking, we don't have any buyers at $88 on this. So oil is now on for its second weekly decline amid fears of spreading recession, fears of further interest rate rises by the US Federal Reserve, putting a lot of pressure on this.

If you're short on this, your stock goes above the $90 a barrel level with a view potentially to dropping below the 76.4% retracement at 8644 then onto a total retracement all the way on then down to this line down here at $82.55 which would take us back to those lows.

US crude

Now that's Brent. But in fact, if you look at US crude, it's exactly the same chart. Of course it always is. There is just this difference between the two: pricing. We've got about $8 between Brent and US crude at the moment. But we're in this area of support here. If anything, we're looking as though we could well possibly surpass this 76.4% retracement quicker than we are with Brent.

And again, this is the same sort of trade. If you're short on this, your stock would go above this area up here, which would be the 50 period moving average. So you'll stop at around about the $85 level 8069 is where we are the total retracement. That should be a price target.

If you're short on this, 7611 could well be a good area on which to take profits if you're short on any of these, either of these two Crude oil trades that are available on the IG platform.