WTI crude oil price forecast amid dropping more than $10/barrel yesterday

WTI crude oil price had dropped by more than $10/barrel yesterday, falling below $100 and bringing some relief to investors scared off rising prices. Inflation is making central banks raise rates as quickly as possible, and the decline in oil prices is supposed to cool things down a bit.

But the stock market did not react positively. Just the opposite.

Are you looking for fast-news, hot-tips and market analysis?

Sign-up for the Invezz newsletter, today.

Oil dropped on fears of an imminent recession. If a recession is just around the corner, why is the Federal Reserve ready to hike the funds rate by another 50bp or 75bp in July?

The vicious circle is enough to make investors cautious. Indeed, recession risks have increased sharply in the United States and Europe. Real incomes are squeezed, but is a recession imminent?

It appears so, at least judging by yesterday’s massive drop in the WTI crude oil price. However, from a technical perspective, the picture remains constructive as long as the market bounces back above $100/barrel.

$120/barrel is a key level to watch moving forward

Besides the $100/barrel, which proved to be psychological since March, investors should keep an eye on $120/barrel. A possible double top pattern may suggest more weakness, should the price drop below $100/barrel, but its ability to climb back every time it drops hints at another attempt at the $120/barrel.

In other words, the bias is neutral while the market remains between the two levels and turns bullish on the move above $120/barrel, respectively bearish on a drop below $100/barrel.

One should look at the Brent crude futures to form an idea about just how violent the drop in the oil prices was. The price dropped by $10.73/bbl, the largest absolute price drop since the contract started trading in 1988.

Since Russia invaded Ukraine in late February this year, energy prices have moved higher. While few think of winter now that summer has barely begun, the pressure on energy prices will continue to mount if the conflict drags into the cold European months.

As such, each drop is seen as a relief and hope that the rise in the prices of goods and services will end soon. But the conflict in Eastern Europe is unlikely to end any time soon, so the oil market will likely see buyers emerging during the summer months.