WTI falls to weekly lows in $116s, eyes 21DMA pre-Fed

• WTI recently fell to fresh session lows and is eyeing a test of its 21DMA pre-Fed rate announcement. 
• Commentary about a weak outlook for demand growth and China lockdowns is being cited as weighing.
• But oil markets look set to remain right for the rest of the year amid OPEC+ output woes. 

Front-month WTI futures recently fell to fresh weekly lows in the $116s and are currently trading with losses on the day of just over $2.0 as traders brace for what could be the largest rate hike from the Fed in 28 years later in the session. The American benchmark for sweet light crude oil is looking to test its 21-Day Moving Average, which currently sits just above $116, suggesting that, for now, though WTI is trading nearly $6.0 below earlier weekly highs, the bullish trend remains intact. 

In terms of fundamental catalysts, some are citing downbeat commentary from the International Energy Agency (IEA), who on Wednesday said that higher oil prices and a worsening economic outlook are dimming the outlook for crude oil demand. Various Chinese cities have been moving to reimpose restrictions this week as the nation continues to struggle in its efforts to stamp out Covid-19. Meanwhile, the latest US Retail Sales figures have pumped recession calls. 

All of this might be weighing on oil on an intra-day basis, but WTI continues to derive support from expectations for tight oil market conditions to persist for the near future. OPEC said earlier in the week that output fell in May despite the cartel aiming for to increase production, as some of its smaller members struggle to lift output. Libya is currently in a political crisis that has currently halted around 1M barrels per day in output. Meanwhile, Russian output also remains under pressure from Western sanctions over its invasion of Ukraine.  

One commodity strategist said that the recent drop in OPEC+ output means that oil markets are likely to remain in a deficit of around 1.5M barrels per day for the remainder of the year. That means further drawdown on already heavily drained oil reserves, supporting the case for oil prices to remain supported well within triple-digit territory.