U.S. West Texas Intermediate crude oil futures are up late in Friday’s session as a surge in U.S. payrolls helped ease some of the worries about a recession. Nonetheless, the decision was tentative, suggesting traders were still weighing demand concerns against tight supply.
Based on this assessment, we expect increased volatility in the crude oil market as a strong jobs report is not enough to erase the threat of a recession. Especially since headline inflation, which stood at 8.6% in May, could rise in next Wednesday’s consumer inflation report.
Moreover, the Fed is still expected to hike interest rates aggressively in July and September. Additionally, the U.S. economy contracted 1.6% in the first quarter and is expected to shrink 1.2% in the second quarter, according to the Atlanta Federal Reserve’s tracker GDPNow. Two consecutive quarters of negative GDP is a widely accepted definition of a recession.
As of 19:00 GMT, August WTI Crude Oil is at $104.68, up $1.95 or +1.90%. The United States Oil Fund ETF (USO) is trading at $78.55, up $2.00 or +2.61%.
The reaction of traders to a pair of 50% levels at $104.58 and $103.85 should determine the direction of the August WTI Crude Oil market through Friday’s close.
A sustained move above $104.58 will indicate the presence of buyers. If this creates enough upward momentum, look for a push towards the minor Fibonacci level at $106.81. This is a potential trigger point for an upward acceleration.
A sustained move below $103.85 will signal the presence of sellers. If this generates enough downward momentum, expect selling to eventually extend to the long-term Fibonacci level at $99.82.
The main trend is down so we will likely see sellers trying to defend the trend between $104.58 and $106.81. They will try to form a potentially bearish secondary lower top. If successful, look for a retest of the main bottom at $95.10. The removal of this level will reaffirm the downtrend with major support at $91.00 at $83.95 the next target.