WTI bears approach $84.00 as inflation woes weigh on commodities

• WTI crude oil remains on the way to printing the second weekly loss.
• Fears of energy demand escalate as higher inflation, hawkish central banks amplify recession woes in major economies.
• Hopes of potential increase in China’s oil demand, optimism from OPEC+ supply cuts challenge bears.

WTI crude oil holds lower ground near $84.30, after reversing from $86.94, as bears brace for another weekly loss during Friday’s Asian session.

The black gold’s latest weakness could be linked to the market’s fears of recession amid upbeat inflation readings and hawkish central bank signals. Also likely to have weighed the energy benchmark could be the US-led efforts to increase the oil output by reducing its Strategic Petroleum Reserve (SPR).

On the contrary, China’s easing of quarantine rules for travelers triggered hopes of more oil demand from the world’s biggest industrial player. Additionally, the OPEC+ supply cuts and the ongoing Russia-Ukraine tussles are extra positives for commodity prices.

That said, the US data and hawkish Fedspeak could be linked to the fears of recession. S Initial Jobless Claims eased to 214K for the week ended on October 07 versus 230K expected and a revised down 226K prior. Further, Philadelphia Fed Manufacturing Survey Index dropped to -8.7 for October versus the -5 market consensus and -9.9 previous reading. Additionally, US Existing Home Sales rose past 4.7M expected to 4.71M but eased below 4.78M prior. Recently, Federal Reserve Governor Lisa Cook mentioned that ongoing rate increases will be required.

Amid these plays, Wall Street closed in the red following an initially upbeat performance while the US 10-year Treasury yields rose to the highest since 2008. That said, S&P 500 Futures extend the previous day’s losses with 0.50% intraday downside while the CME’s FedWatch Tool suggests a near 98% chance of the Fed’s 75 bps rate hike.

Moving on, a light calendar may restrict the WTI crude oil’s moves but fears of economic slowdown and likely reduction in the energy demand seems to keep the bears hopeful. With this in mind, Reuters said, “Oil prices were near flat during a choppy trading session on Thursday, as worries about inflation dampening demand for oil contended with news that China is considering easing COVID-19 quarantine measures for visitors.”

Technical analysis

Failure to cross the 50-DMA hurdle, around $86.40 by the press time, directs WTI sellers towards the previous resistance line from October 10, near $83.60 at the latest.