CRUDE OIL OUTLOOK:
- Rise in crude oil prices halt as US jobs data points to concerns over ‘stagflation’
- Monetary policy bets on upcoming data from the Fed and US CPI speech
- WTI advance stalled at nearly $ 80 / b, bullish momentum could run out of steam
Crude oil prices retreated from a six-week high on Friday, following a drop amid largely risky backdrop after December’s US jobs report went through the cables. The wage bill was disappointed, but wages rose at a faster pace than economists expected, although the pace cooled a bit from the previous month.
This appeared to fuel familiar worries about persistent inflation coupled with subdued economic growth. In fact, data from the PMI survey suggests that the US expansion has slowed considerably since the peak in May. Short- and medium-term inflation expectations have barely budged from 16-year highs.
Interestingly, even though the shipping costs have fallen sharply. The benchmark Baltic Dry Index – which reached its highest levels since last year’s Great Recession due to supply chain disruptions – fell sharply in the third quarter to end the year to pre-pandemic levels.
Taken together, this appears to imply that markets are seeing inflation hold up even as the base effects of the onset of the Covid-19 pandemic wear off and global trade networks are repaired. In fact, over the past three months, the 2022 Consensus U.S. GDP growth forecast has notably declined as the outlook for price growth has firmed.
Concerns about “stagflation” – a scenario in which weak growth and stubbornly high inflation drag Fed policy in opposite directions – naturally inspired bouts of risk aversion. The same is a threat to sentiment-sensitive crude oil prices over the coming week.
CRUDE OIL AT RISK, BECAUSE THE FED’S OUTLOOK REMAINS CONCENTRATED
Comments from Atlanta Fed Chairman Bostic begin a busy week of scheduled gossip by U.S. central bank officials. The confirmation hearings for President Powell and Vice President Brainard on Tuesday and Thursday respectively are highlights, but many more are on the agenda. They can continue to drive a hawkish narrative.
On the data front, Wednesday’s release of the December US CPI report is expected to top the list. Basic price growth is expected to accelerate to 5.4% year-on-year, the fastest in 30 years. The overall figure reached 7% year-on-year for the first time since 1982.
A little consolidation can be in store in the short term, however. Bellwether S&P 500 stock index futures stabilized amid a lull in the new news feed after Friday’s bloodletting, suggesting markets may go into consolidation mode for now until another powerful catalyst comes along later in the week.
CRUDE OIL TECHNICAL ANALYSIS
Prices stalled against resistance capped at 79.60, with very early signs of negative RSI divergence cautiously hinting that momentum could be faltering. Initial support is pegged at 75.27, with a break below that paving the way for a test of the congestion zone descending to 72.52. The breakout of resistance could pave the way for an extension to last year’s high at 85.41.
Crude oil price chart created using TradingView
CRUDE OIL COMMERCIAL RESOURCES
— Written by Ilya Spivak, Chief Strategist, APAC for DailyFX
To contact Ilya use the comments section below or @IlyaSpivak on Twitter