WTI stumbles below $74.10s on risk-aversion and a buoyant US Dollar

• Western Texas Intermediate remains under pressure from a strong US Dollar.
• Expectations that the Fed would tighten further than expected reignited.
• Russia’s cutting oil production and China’s reopening are a tailwind for WTI.

Western Texas Intermediate (WTI), the US crude oil benchmark, is losing more than 2.50% on Wednesday, as investors remain uneasy on upbeat US economic data that could warrant further tightening by the Federal Reserve. Hence, WTI is trading at $73.97 per barrel, down by 2.86%.

The Federal Reserve Open Market Committee (FOMC) will reveal the minutes of their first reunion of 2023. Recent hawkish rhetoric by Fed officials is eyed by traders, who would like to assess how many members of the FOMC were open to considering a 50 bps rate hike.

Given the backdrop, speculations for a higher terminal rate for the Federal Funds Rate (FFR) bolstered the US Dollar (USD), as shown by the US Dollar Index advancing 0.23%, at 104.335. investors should be aware that WTI, denominated in US Dollars, would be more expensive for holders of other currencies, explaining WTI’s fall during the session.

China’s reopening continued to cap WTI losses on Wednesday due to an expected increase in oil demand. According to Morgan Stanley, global oil demand would grow by about 36%, based on China’s removal of Covid-19 restrictions.

Furthermore, Russia’s cutting its oil output by 500K bpd would likely keep oil prices underpinned.

WTI Technical analysis

From a technical perspective, WTI is neutral-to-downward biased, unable to dip below the $70.00 barrier, the YTD low. Momentum indicators remain bearish, namely the Relative Strength Index (RSI) and the Rate of Change (RoC); hence another leg-down is expected. WTI’s first support would be $74.00. Break below will expose the MTD low at $72.30, followed by the YTD low at $70.10.

In an alternate scenario, if WTI reclaims the 20-day Exponential Moving Average (EMA) at $77.41, that could pave the way for further upside.