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Crude Oil Prices Face Competing Themes: Cooling Bank Volatility & Fed Policy Bets

Crude Oil, WTI, Frist Republic Bank, Fed Policy Outlook – Talking Points:

  • Crude oil prices traded flat amid competing fundamental themes
  • First Republic Bank poised to receive rescue aid cooled volatility
  • But, markets also priced out some Fed rate cut expectations ahead

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WTI crude oil prices traded relatively flat over the past 24 hours in an overall volatile trading session. On the one hand, reports crossed the wires that First Republic Bank was poised to receive emergency aid to the tune of 30 billion from major lenders. But, because of cooling woes in the financial sector, Treasury yields were pushed higher.

The latter speaks to traders pricing out anticipated rate cuts from the Federal Reserve later this year because of last week’s Silicon Valley Bank collapse. Market-implied policy rates have added back about 50 basis points in tightening for the 3-month horizon. That would leave rates around 5% instead of the 4.5% seen earlier in the week.

As such, sentiment-linked crude oil faced opposing fundamental forces. On the one hand, risk appetite improved. On the other hand, a Fed that can continue tightening could bode ill for future oil demand. Looking at the remaining 24 hours, eyes turn to the University of Michigan Sentiment data at 14:00 GMT. A softer outcome speaking to worried consumers may renew selling pressure for WTI.

Crude Oil Technical Analysis – Daily Chart

On the daily chart, crude oil confirmed a breakout under a Bearish Rectangle chart formation. That may open the door to downtrend resumption. Key support seems to be a wide range between 61.69 and 65.60. The latter was established in May 2021. On the other hand, turning higher would place the focus on the December low at 70.10, which may hold as resistance.

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Crude Oil Technical Analysis – Daily Chart

Chart Created Using TradingView

Crude Oil Sentiment Analysis – Bearish

Looking at IG Client Sentiment (IGCS), which tends to function as a contrarian indicator, about 90% of retail traders are net-long crude oil. Since most of them are long, this hints prices may fall. Upside exposure fell by 2.86% compared to yesterday. But, compared to last week, net-long bets soared almost 50%. With that in mind, the combination of overall positioning and recent changes in exposure is offering a bearish contrarian trading bias.

Crude Oil Sentiment Analysis - Bearish

— Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com

To contact Daniel, follow him on Twitter:@ddubrovskyFX

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