WTI, on retreat, testing 10-day lows at $85.50 area

• WTI oil prices drop 8% on the week to test $85.50 lows.
• Recession fears are weighing on crude prices.
• WTI price forecast upgraded to $94 in Q4 – TDS.

WTI futures resumed their downward trend on Friday, and are on track to an 8% weekly depreciation after having peaked at $93.58 on Monday. The US oil benchmark is retracing gains from Thursday’s rebound to test the support area at $85.50.

Oil prices drop amid increasing recession fears

Crude prices have gone through a strong reversal this week with the market increasingly concerned about the potential impact on demand of a global recession combined with aggressive monetary tightening by most of the major central banks.

The CPI report released in the US earlier this week has confirmed the resilience of inflation pressures, which offers additional reasons for the Federal Reserve to approve another aggressive rate hike in November.

As a matter of fact, Federal Funds futures priced in a 13% chance of a 100 basis point hike immediately after the release of the US inflation data. These tightening hopes increase the attractiveness of the US dollar to investors, weighing further on oil prices.

This week’s events have offset the positive impact on oil prices of the production cuts announced by OPEC+ last week. The club of the world’s largest oil suppliers agreed slashing production by 2 million barrels per day, the largest cut since the outbreak of the COVID-19 pandemic.

WTI price forecasts upgraded to $94 in Q4 – TDS

From a wider point of view, strategists at TD Securities remain confident about the chances that OPEC+ cuts will end up pushing prices higher: “We are comfortable in saying that the most recent production targets from OPEC+ have very convincingly tilted price risks to the upside. For that reason, we have upgraded our Q4-22 WTI forecast to $94/b ($99/b Brent) and the 2023 average to $97/b ($101/b).”

Technical levels to watch