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Asset Watch

Is crude oil about to hammer the bears?

 

Thursday, December 1, 2022

With unrest in China increasing investors’ anxiety, crude oil has been in a downward spiral since early November. However, while recession fears have dominated recently, crude’s fundamental outlook may be more optimistic than the price action suggests.
For starters, the U.S. is the largest oil-consuming country in the world, and the Atlanta Fed projects that U.S. real GDP growth will hit 4.3% in Q4 (updated on Nov. 23). Therefore, with resilient economic output poised to boost oil consumption, crude’s recent sell-off may not reflect the supply/demand dynamics that could confront the market in the months ahead.
Second, Goldman Sachs reiterated its 2023 $110 Brent price target on Nov. 29, with Global Head of Commodities Jeff Currie noting that while “demand is probably heading south again in China given what’s going on,” the bank plans to “stick to our guns” as they think “there is a high probability that we do see a cut” from OPEC+ soon.

As a result, with sentiment driving the recent decline, support from OPEC+ could send the crude price in the opposite direction.

Likewise, the technicals are also accommodating, as crude recorded a hammer candle on Nov. 28, which means the price declined sharply intraday and then closed near the highs. Furthermore, seven of the last nine hammer candles resulted in short to medium-term rallies, while two instances were false signals and culminated with more weakness.

So, will the bulls win this battle, or are lower lows on the horizon?


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