Oil drops ahead of US interest rate decision

WTI crud has dropped by over 1% on the day and is trading around $78.40 at the time of writing after falling from a high of $80.44 and reaching a low of $77.91 so far on the day, ending a bullish start to the year towards month-end and following its fi4rst weekly loss last week for the year so far,

Analysts argue that technical factors have been mastering the scene play, with Brent futures failing to hold above the 100-day moving average. The market remains buoyed by what China’s reopening will mean for demand.

Money managers increased their bullish positions on Brent to its highest level in 11 months. Spot prices moved back into a premium with futures, signaling expectations that demand will outstrip supply, taking into account that in China, travel surged to 90% of pre-pandemic levels over the Spring Holiday. Domestic air travel was also up 80% y/y last week.

Crude oil prices on Monday are lower as investors turned cautious ahead of an expected rise in US interest rates this week. The Fed is meeting and a hawkish pushback against the notion of the market that Fed’s lower space of rate hikes is looming. This is keeping investors sidelined and keen to cash in on positions before the event. The Federal Reserve is expected to result in a 25-basis point rise to US interest rates, keeping recession fears top of mind for investors.

The drop in prices comes despite geopolitical risk in the Middle East rising following a drone attack on an ammunition manufacturing plant facility in the Iranian city of Isfahan. The attack is being blamed on Israel, according to the New York Times.

Elsewhere, there are ongoing concerns that markets will struggle to adjust to European sanctions on oil products. Total Energies warned that Europe is still at risk of diesel shortages.

Technically; a correction into resistance could entice trapped longs to get out of losing or breakeven positions and subsequently the shorts coming onto the market around 38.2% Fibonacci correction could see a move out of the consolidation below the trapped volume and into a 100% measured target towards $75.00 over the course of the coming week.