WTI Price Analysis: Oil prices drop following PBoC decision

• WTI fell to a five-day low of $69.82, seeing more than 1.50% losses.
• PBoC rate cuts fueled energy demand concerns amongst Oil traders.
• World indexes declined following the decision signalling a negative market sentiment.

On Tuesday, the West Texas Intermediate (WTI) barrel fell to a five-day low and then stabilized at $70.30 as rate cuts announced by the People’s Bank of China (PBoC) fueled concerns regarding the economic health of the largest Oil importer in the world. In addition, American, German, British and Japanese stocks are falling, indicating a negative market sentiment amid fears of a global economic downturn.

PBoC rate cuts fuel global economic downturn fears

During the Asian trading session, the People's Bank of China made an announcement to lower the benchmark Loan Prime Rates (LPRs) by 10 basis points (bps). This led to a decrease in the one-year LPR from 3.65% to 3.55% and the five-year LPR from 4.30% to 4.20%. This decision served as a reminder to investors about the sluggishness observed in Chinese economic activity. In that sense, as Oil prices are positively correlated with strong economic activity, it implied higher demand for black gold, which since China is the largest Oil importer in the world, led Crude Oil prices to weaken.

As a reaction, US, German and Japanese stocks are in retreat, reinforcing the negative market mood. The Wall St major indexes from the US saw more than 0.50% declines while the German DAX and the Japanese Nikkei index retreated from all-time highs seeing 0.40% and 0.80% losses on the day, respectively.

WTI Levels to watch

According to the daily chart, the WTI holds a neutral to a bearish outlook for the short term as bears have lost some steam, but technical indicators remain negative, suggesting that the market may still have some downward potential. In addition, the price trades below the 20,100 and 200-day Simple Moving Average (SMA) indicating that in the bigger picture, bears are in command.

On the upside, a move above the 20-day SMA at $70.80 would reignite the bullish momentum for WTI, with next resistances at the $71.30 zone and $72.30 area (daily high). On the other hand, on the downside, the next support levels to watch are the daily low at $69.80, followed by the $69.50 area and the psychological mark at $69.00.