Oil prices saw a downward trend on Tuesday as the Federal Reserve continued to take a cautious stance despite the recent softening of inflation. This cautious approach has raised concerns that US interest rates may remain at elevated levels for a prolonged period. Both Brent crude and WTI futures experienced a nearly 2% decrease from the previous day, with Brent crude trading at $83.11 per barrel and WTI at $78.45 per barrel. The reluctance of Federal Reserve officials to declare victory over inflation suggests that economic restrictions may persist for some time, impacting borrowing costs and cash availability.
Federal Reserve Vice Chair Philip Jefferson emphasized that it is premature to determine the lasting impact of the inflation deceleration, while Vice Chair Michael Barr advocated for a more cautious policy approach that requires additional time for implementation. Atlanta Federal Reserve President Raphael Bostic noted that a high level of certainty regarding the slowing down of price growth will take significant time to achieve. Overall, these statements indicate that interest rates are likely to remain elevated for a longer duration than anticipated by financial markets, affecting the demand for crude oil in the market.
In the 4-hour chart, WTI crude oil prices are currently consolidating within a trading range between the 80.10 resistance and the 76.60 support. The price is situated below the 20- and 50-period simple moving averages (SMAs), with potential support at the 77.70 level. Further downside movement could lead to a test of support levels at 77.25 and 76.60, potentially reaching lows not seen since February 15. Oscillators indicate a descending trend, with the RSI falling below 50 and the stochastic oscillator approaching oversold conditions. Upside movement would require a break above the SMAs towards 80.10, with further resistance at 80.90 and 81.60.
Long-term Outlook on Oil Prices
Turning to the daily chart, WTI crude oil prices are currently above an ascending trend line dating back to December 13. However, the prices are capped by a death crossover between the 20- and 200-day SMAs around the psychological level of 80.00. Overcoming these obstacles could lead to a retest of the 50-day SMA at 81.50 and further upside potential towards the 84.45 level. Conversely, downside pressure may find support at 75.80-76.90 before potentially dropping to levels around 71.80 seen on February 5. Technical indicators suggest a bearish retracement, with the RSI below 50 and the stochastic showing a negative crossover in oversold territory. WTI crude oil appears neutral in the short term but maintains an upward trendline in the long term.