WTI Erased Nearly All April Gains

Crude prices were up more than 10% in April but have erased nearly all gains a week after OPEC+ announced voluntary cuts for May. Will the rollercoaster in WTI continue?

Worries of Global Economic Slowdown

So far, earnings season has failed to reassure investors that the global economy is roaring ahead. have talked about "resilience" and "stability," while companies hedged their outlook by talking about uncertainty and caution. Revenues in US companies have increased 9.3% compared to the prior year without factoring in 5.0% inflation over the same period. It's not the scenario that would provide confidence for a surge in demand from the world's largest petroleum consumer.

Global gasoline markets are stalling, and demand for diesel lagging in both the US and Asia. Diesel is an important indicator of industrial activity and could be a sign that the economy in those regions is stalling. With the release of the FOMC minutes, even the Fed is now admitting that a recession was likely later in the year. The DOE reported an unexpected build in gasoline inventories on the same day that initial unemployment claims posted a gain. It was below the $80/bbl mark.

A Brighter Future?

Despite the drop this week in line with general market sentiment, crude prices are still up around 20% from the mid-March low in the wake of the banking crisis. The retracement has not yet filled the gap created by the surprise OPEC+ announcement on voluntary cuts over the April 2 weekend. At the time, there was an expectation that Chinese growth would spur demand. Since then, China reported better than anticipated Q1 growth, which opened the possibility that the rebound had already happened.

Dollar strength also contributed to weaker crude prices. On that front, there could be some relief for the bulls coming, as the suggests most economists expect there will only be one more hike from the Fed before going into hold mode. Now focus will turn to next week's first look at US GDP figures, which could set the tone for the market's perception of if and how bad a recession is coming.

WTI Retraces Double Top Formation

Crude prices met stiff resistance above $83/bbl, but did surge up there impulsively for a gain of nearly 30% since March’s low of $64/bbl. If it continues to fall without respite, the likelihood of a reversal will increase, especially if the gap at $75.50/bbl gets filled. In that scenario, crude may receive additional pressure down to the golden pocket of $71.60/bbl. But if prices see a bounce by the 38% Fibonacci at $76/bbl, the downward leg could be a flag pattern, and the trend may continue its uprise if bulls can quickly reclaim $80/bbl.

Source: Spreadex / US OIL

KEY takeaways

The price of crude oil has retracted almost all of its April gains a week after OPEC+ announced voluntary cuts for May. Despite concerns about a global economic slowdown, crude prices are still much higher than in mid-March after the banking crisis, and there is hope that China's Q1 growth could spur demand. Factors such as dollar strength and uncertainty surrounding the Fed's actions also contribute to the volatility of crude prices.