WTI crude oil stays depressed around mid-$79.00s amid fresh recession fears

• WTI remains pressured after reversing from six-week high.
• Fears of US recession supersede hopes of more energy demand from China.
• Firmer US Dollar, hawkish Fedspeak also exert downside pressure on the Oil price.
• EIA inventories, risk catalysts will be crucial for fresh impulse.

WTI crude oil holds lower ground near $79.50 amid early Thursday, after witnessing a heavy sell-off from the 1.5-month high the previous day. In doing so, the black gold struggles to justify the hopes of more energy demand from China amid fresh economic slowdown fears emanating from the US. Also exerting downside pressure on the energy benchmark could be the firmer US Dollar and the recently hawkish comments from the Federal Reserve (Fed) officials.

Downbeat US data renewed fears of economic slowdown and weighed on the Oil prices the previous day. That said, US Retail Sales marked the biggest slump in a year while posting 1.1% MoM contraction for December, versus -0.8% market forecasts and -1.0% prior (revised). On the same line, Producer Price Index dropped to the lowest levels in six months with -0.5% MoM figure compared to -0.1% expected and 0.2% prior (revised).

Even so, the Fed policymakers remained hawkish as St. Louis Federal Reserve's President James Bullard said US interest rates have to rise further to ensure that inflationary pressures recede. On the same line, President of the Federal Reserve Bank of Cleveland Loretta Mester praised the Fed’s actions to tame inflation and Kansas City Fed President Esther George mentioned that the central bank must restore price stability, "that means returning to 2% inflation." Recently, Dallas Federal Reserve President Lorie Logan supported slower rate hike pace but also mentioned possibly higher stopping point.

Elsewhere, analysts at the Goldman Sachs expected stronger China growth and favored hopes of more energy demand from the dragon nation. However, fears of the US-China tension outweigh  the optimism of late. US Treasury Secretary Janet Yellen and Chinese China’s Vice Premier Liu He met in Germany on Wednesday and initially boosted the risk appetite, together with the BOJ’s inaction. However, the diplomats’ mentioning of the areas of disagreement raised market fears of another round of US-China tension. Previously, the South China Morning Post (SCMP) mentioned that Beijing ‘should be wary’ as the US and Taiwan seeks closer economic ties.

On a different page, the American Petroleum Institute’s (API) Weekly Crude Oil Stock came in as 7.615M versus 14.865M prior.

Amid these plays, Wall Street closed in the red and yields were down too while the US Dollar recovered after refreshing the lowest levels since late May. That said, the US Dollar Index (DXY) also bounced off the lowest levels since May 31.

Moving on, risk catalysts will be more important than the weekly oil inventory data from the US Energy Information Administration, expected -1.75M versus 18.962M prior.

Technical analysis

Despite failing to cross the 100-DMA, around $81.90 by the press time, the WTI crude oil price remains above the 50-DMA support surrounding $78.20, which in turn suggests limited downside for the black gold.