WTI bears move in for fresh lows below critical weekly structure

• Oil is marking fresh lows on the day as commodities take a hit on China's covid and lockdown risks.
• Global growth concerns and the Iran deal are weighing on the black gold. 

Oil prices are carving out further downside on Thursday as a combination of the lockdowns in China and concerns over global growth take hold amid fading supply concerns. At the time of writing, the black gold is trading lower by some 3.1% having hit a fresh low for the session of $86.04bbls West Texas Intermediate (WTI).

West Texas Intermediate tumbled from a high of $89.63 on the day as Pessimism over demand took hold following news that Chengdu has become the latest Chinese city to be locked down as Beijing continues to pursue its controversial "zero-Covid" policy. Beijing's drive to ensure "zero Covid" has been accused of stifling economic growth and this has added to worries that high inflation and interest rate hikes are denting fuel and oil demand while supplies are expanding incrementally.  

Factory activity slumped in August as China's zero-COVID curbs and cost pressures continued to hurt businesses. The PMIs released by CFLP (China Federation of Logistics & Purchasing) showed a second consecutive month of contraction in the manufacturing sector while the non-manufacturing outlook also moderated in August.

''China’s growth forecasts are poised for further downgrade as hopes for a turnaround in the coming months fade. We thus revise down our 2022 GDP growth forecast for China to 3.3% from 4.1% with 3Q22 at 3.4% YoY and 4Q22 at 4.5% YoY,'' analysts at UOB explained.

Commodity prices, in general, have moved lower this week following last Friday's hawkish speech from Federal Reserve chair Jerome Powell. He advocated for ongoing rate hikes until inflation is under control despite the costs to growth and jobs in the economy.

However, the price of oil is also falling as markets price the rising odds of an imminent resolution on the Iran file.''Wild gyrations in our gauge of energy supply risks, which extracts information from market prices, are overwhelmingly being driven by the potential for an Iran deal. This is the silver bullet that can kill the bull market in petroleum products, as it would immediately build the world's spare capacity, which in turn allows other producers to play catch-up in building a spare capacity buffer,'' analysts at TD Securities explained. 

WTI technical analysis

The price is breaking a key structure level around 89.00 on the weekly chart and a breakout is set to target the $85.39 prior swing highs on the downside. This would be leaving behind an M-formation that could see the price retest the $89 level before a full breakdown into the $70s would occur for the rest of the year.