WTI drops towards $69.00 amid Oil supply fears, mixed sentiment ahead of key PMIs

WTI crude oil extends the previous day’s U-turn from one-week high to refresh intraday low near $69.15 during early Friday.

In doing so, the black gold justifies the market’s fears of economic crisis, emanating from the bank fallouts, as well as the hopes of more rate hikes from the US Federal Reserve (Fed). It’s worth noting that comments from US Energy Secretary Jennifer Granholm failed to impress the black gold buyers despite suggesting more US buying to refill the reserves.

US Energy Secretary Granholm said, “It could take years to refill oil reserve,” while signaling the readiness for more crude release from the Strategic Petroleum Reserve (SPR).

Elsewhere, the US Dollar Index (DXY) stays defensive near 102.60 after bouncing off a seven-week low the previous day but the US 10-year and two-year Treasury bond yields remain depressed around 3.39% and 3.80% respectively by the press time. a shift in the market’s mood, amid increasing fears of banking rout and Fed rate hikes, seems to also allow the WTI bears to keep the reins.

Further, a collapse in the banking shares and chatters that the Fed’s emergency lending to the banks has ballooned the balance sheet, renewing fears of more Fed rate hikes, which in turn favored the Oil prices. Reuters said, “Federal Reserve emergency lending to banks, which hit record levels the last week, remained high in the latest week, amid continued large-scale extensions of credit to the financial system, which now includes official foreign borrowing.” The news also mentioned that borrowing from the Fed caused the size of its overall balance sheet to move to $8.8 trillion from $8.7 trillion the prior week.

Elsewhere, mixed US data and comments from US Treasury Secretary Janet Yellen also weighed on the WTI prices. “China and Russia may want to develop an alternative to the US dollar,” while also showing preparedness for additional deposit actions `if warranted'. “Strong actions have been taken to ensure deposits are safe,” said US Treasury Secretary Yellen.

Talking about the data, the US Chicago Fed National Activity Index (CFNAI) dropped to -0.19 in February versus 0.0 expected and 0.23 prior. Further, Weekly Initial Jobless Claims declined to 191K for the week ended on March 18, versus 192K prior and 203K market forecasts. It should be noted that the US New Home Sales rose 1.1% in February from 1.8% prior, versus 1.6% analysts’ estimation, whereas Kansas Fed Manufacturing Index for March rose to 3.0 from -9.0 prior and 6.0 expected.

Moving on, the first readings of activity numbers from the US, Europe and the UK for March will be crucial for the WTI crude oil traders for clear directions. Should the PMIs appear upbeat the Oil price may regain the upside momentum while a negative surprise could weigh on the energy benchmark.

Technical analysis

Unless crossing an upward-sloping resistance line from March 16, around $71.80 at the latest, the WTI crude oil bears are all set to retest the 100-Hour Moving Average (HMA) level surrounding $68.65.