Investing.com – Oil bears are increasingly optimistic that oil prices could trade below $90.
Crude oil was down more than $8 a barrel as of Tuesday afternoon, the second major drop in a week after falling $10 seven days earlier, a sign that oil prices are likely to recover since rebounding to between $130 after the Ukrainian invasion. A break of the new bearish zone and $140.
Crude or WTI crude was down $8.16, or nearly 8%, at $95.93 a barrel in New York trading as of 1:00 p.m. ET (17:00 GMT). The U.S. crude benchmark has fallen nearly 10 percent since early July.
London traded down $7.49, or nearly 7 percent, to $99.61 a barrel. The global crude benchmark has fallen 8.5% since the start of the month.
“A 7% drop in one day is a big deal,” John Kilduff, founding partner at New York energy hedge fund Again Capital, said of Tuesday’s move. “Will some of that be retroactive? I Have to believe this. But we have a nice downtrend. Two-day moving average around $88.”
The WTI technical chart provided by skcharting.com suggests further declines if the current momentum holds.
“WTI both looks set to hit the 200-day moving average at $93.90 and the 50-week moving average at $92.70,” said Sunil Kumar Dixit, the firm’s chief technical strategist, referring to the simple and exponential moving averages, respectively.
“A rally to $102-105-108 is likely in the short term. But if a strong sell-off pushes both support levels, it could open the door for vertical support areas at $85 and $83.”
The U.S. dollar index against six other major currencies hit a fresh 20-year high of nearly 109 points on Tuesday as oil prices fell. A stronger dollar generally makes crude oil and all other commodities more expensive in dollar terms for those using other currencies.
In China, new restrictions on social activity and commerce following a new infection of the highly contagious BA.5.2.1 subvariant of Omicron have led to concerns that authorities in the second-largest economy may be dealing with the pandemic again over-intervention. Many believe the economic damage from Beijing’s “zero outbreak” policy outweighs the health benefits.
Meanwhile, Reuters reported that investors have been dumping oil-related derivatives at one of the fastest rates in the pandemic era as recession fears mount.Hedge funds and other fund managers sold the equivalent of 110 million barrels of six of the most important oil-related futures and options contracts in the week ended July 5
The slump in oil prices in July also dampened OPEC’s optimistic forecast for global oil demand heading into next year. The 13-member group of oil exporters led by Saudi Arabia expects global oil demand to average a record 103 million barrels per day in 2023. The forecast is based on the assumption that the war in Ukraine will not affect economic growth and that China will overcome Covid restrictions.
The White House on Monday urged OPEC, especially Saudi Arabia, to produce more oil, saying it believed the group of oil exporters was capable of doing so.
“We do believe in the ability to take further steps,” White House national security adviser Jack Sullivan said days before U.S. President Joe Biden’s visit to the Middle East, where he will hold talks with top OPEC oil producers .