Crude Oil Prices Fall as Rate Hike Threatens China Recovery Story

Crude Oil Prices Fall as Rate Hike Threatens China Recovery Story

By:Thomas Westwater

Crude Oil Prices Fall as Market Weighs More Rate Hikes

Crude oil prices (/CL) continued falling on Thursday as traders weighed the prospect of further rate hikes from the U.S. Federal Reserve. The commodity fell more than 2% to near the $77 a barrel level, extending losses from earlier this week. That move brought prices to the lowest level since March 31, when crude prices traded at $75.65 per barrel before surging higher in early April when OPEC announced that it would cut production levels in a surprise move to the markets.

The bullish optimism from OPEC’s move has been overtaken by the increasing likelihood of another U.S. rate increase. On Thursday, Loretta Mester, President of the Cleveland Federal Reserve Bank, signaled support for tightening monetary policy. Ms. Mester—who isn’t a current FOMC voter—said that policy will “need to move somewhat further into restrictive territory” and the pace of tightening depends on “economic and financial developments.”

China Likely Not Coming to the Rescue for Oil Bulls

China, the world’s second-largest oil consumer, buoyed sentiment earlier in the week after reporting a higher-than-expected 4.5% growth rate in the first quarter. Oil bulls were also impressed by rosy March data that showed refinery throughput hitting record levels. However, that optimism quickly faded, and more recently, Chinese data suggested that refiners are stockpiling oil.

The increased inventory may allow Chinese refiners to order less oil later this year, especially if prices rise. That would be a bearish turning point for the oil markets, especially if a U.S. recession occurs, which is currently seen as a likely possibility, albeit most forecasters are predicting a rather mild recession. The oil bulls hoping that a Chinese economic revival still has the juice to push crude prices higher may want to keep their attention on not only refinery throughput to gauge the market but also on calculations of inventory levels.

Crude Oil Price: Technical Outlook

Crude oil prices are down nearly 7% on the week, but prices have more room to fall when looking at the Relative Strength Index (RSI), which just recently crossed below its 50 mid-point level. A point of support at the March 31 high of $75.68 may offer an opportunity for some profit taking, given that it would close the gap higher from earlier this month.

crude oil price technical outlook

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