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Oil stuck near strong resistance – fight for $80 continues

Bears remain in control of oil for now as sentiment remains pessimistic.

The price of oil declined on Tuesday as sentiment deteriorated further, bringing the WTI benchmark below the important $80 threshold.

Weak global outlook

Kristalina Georgieva, managing director of the International Monetary Fund, stated on CBS’s “Face the Nation” that the outlook for the global economy is quite bleak and that 2023 will be more difficult than 2022 because all the major growth generators, including the United States, Europe, and even China, will be depressed for the first time in four decades.

China’s growth in 2022 will likely be at or below the world average for the first time in forty years. For the next few months, China will struggle, which will have a bad influence on Chinese growth, a negative impact on regional growth, and an adverse impact on world growth.

Problems in China continue

In his New Year’s message, Chinese President Xi Jinping struck a more cautious tone than the markets had anticipated, warning of more hurdles as the nation enters a new phase of its Covid response. Beijing began easing Covid measures in December, a year after imposing stringent restrictions.

However, this has led to an unusual increase in infections, which is likely to postpone the full reopening of the facility this year.

You can also read: EUR/USD plunges on the first trading day of 2023

While the Chinese leader also projected that the Chinese economy expanded faster than anticipated in 2022, the markets anticipate that this trend would be substantially reversed by the beginning of 2023, as the country faces an overwhelming number of Covid infections. an analysts at CMC Markets said:

“The market cannot expect a rapid recovery of the Chinese economy after three years of (pandemic controls), the mass bankruptcy of small and medium-sized enterprises, the soaring unemployment rate, the rapid increase in the social savings rate, and the rapid growth in the number of infections and deaths in recent months.” 

Bulls still have hope

In this market, however, there are an equal number of bulls and bears, and predicting the future is, at best, difficult. If the globe is able to fully escape from Covid limitations, some forecast that global oil consumption might increase by as much as 4% in the upcoming year.

Another interesting article: Gold awaits fresh data to move- where will inflation send it?

As Russia limits gas, a transition from natural gas to oil might raise oil demand by 3 million to 4 million barrels per day in 2023 according to some analysts. 

Similarly, some experts anticipate that in 2023, many of the barriers that halted the oil price increase this year, like China’s zero-Covid policy and coordinated SPR releases by many nations, will no longer exist. This, in conjunction with sanctions on Russia’s oil and gas, should increase oil prices. 

Bears are still defending the long-term downtrend line. If the price breaks above that level (circa $80), it could be a strong bullish signal, targeting $88.

WTI

WTI chart 1D, source: tradingview.com, author’s analysis

Tomáš is a financial reporter with US markets as his main field. Tomáš is an aspiring author and entrepreneur aspiring to help people get better in financial knowledge.

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