The price of US crude oil broke a major technical support in April
The price of oil gave a technical red alert at the beginning of April after breaking a major long-term support, all against a complicated fundamental backdrop: the so-called reciprocal tariff trade war, geopolitical tensions and internal divisions within OPEC+.
The immediate consequence: a sharp fall in prices, the steepest since the health crisis of 2020. Does this fall reflect economic reality, or is it the result of excessive negative sentiment?
WTI has broken the technical threshold of $65, a pivotal level which had been the market peak ahead of the health crisis in early 2020. This multi-year support gave way under the blows of a market frightened by the prospect of a global recession, whereas it had been preserved since last September. But therein lies the nuance: it's not the recession itself that's at work, but the anticipation of a slowdown, fuelled by daily political and commercial volatility.
At a fundamental level, the fall in the price of oil represents several factors:
- The increased probability of a global economic recession linked to the uncertainty of the prospective international trade framework.
- The new all-time record in US oil production and the Trump Administration's intensive drilling policy.
- Strong dissension among OPEC+ member countries, which ultimately led to an increase in oil supply of over 400K barrels/day from May onwards, i.e. three times the volume initially forecast
- Uncertainty over the evolution of global demand and rising production, it was this new supply/demand ratio that led to the break of the $65 technical support on US crude at the beginning of April.
$65 is therefore the fundamental and technical pivot for the price of oil
The message is twofold. Technically, the signal is crystal-clear: oil has broken a major support. Fundamentally, the scenario of a recession remains hypothetical, as the economic data have not yet validated it. The market is anticipating, often too fast, often too hard.
An analysis of the historical price of US oil shows that the $65 threshold is a kind of frontier between optimistic and pessimistic economic expectations. Clearly, if the market holds below this resistance level, it will be a sign of a trade war that is still a long way off trade agreements. On the other hand, a return to the $65 mark would signal a return to a stable trading environment and a rise in the price of oil towards $80.
Finally, from a macro point of view, an oil price below $65 could accelerate the disinflation process, bringing the FED closer to a pivot. April's fall in the price of oil on the commodities market would therefore be a blessing in disguise.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
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CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
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The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
The price of oil gave a technical red alert at the beginning of April after breaking a major long-term support, all against a complicated fundamental backdrop: the so-called reciprocal tariff trade war, geopolitical tensions and internal divisions within OPEC+.
The immediate consequence: a sharp fall in prices, the steepest since the health crisis of 2020. Does this fall reflect economic reality, or is it the result of excessive negative sentiment?
WTI has broken the technical threshold of $65, a pivotal level which had been the market peak ahead of the health crisis in early 2020. This multi-year support gave way under the blows of a market frightened by the prospect of a global recession, whereas it had been preserved since last September. But therein lies the nuance: it's not the recession itself that's at work, but the anticipation of a slowdown, fuelled by daily political and commercial volatility.
At a fundamental level, the fall in the price of oil represents several factors:
- The increased probability of a global economic recession linked to the uncertainty of the prospective international trade framework.
- The new all-time record in US oil production and the Trump Administration's intensive drilling policy.
- Strong dissension among OPEC+ member countries, which ultimately led to an increase in oil supply of over 400K barrels/day from May onwards, i.e. three times the volume initially forecast
- Uncertainty over the evolution of global demand and rising production, it was this new supply/demand ratio that led to the break of the $65 technical support on US crude at the beginning of April.
$65 is therefore the fundamental and technical pivot for the price of oil
The message is twofold. Technically, the signal is crystal-clear: oil has broken a major support. Fundamentally, the scenario of a recession remains hypothetical, as the economic data have not yet validated it. The market is anticipating, often too fast, often too hard.
An analysis of the historical price of US oil shows that the $65 threshold is a kind of frontier between optimistic and pessimistic economic expectations. Clearly, if the market holds below this resistance level, it will be a sign of a trade war that is still a long way off trade agreements. On the other hand, a return to the $65 mark would signal a return to a stable trading environment and a rise in the price of oil towards $80.
Finally, from a macro point of view, an oil price below $65 could accelerate the disinflation process, bringing the FED closer to a pivot. April's fall in the price of oil on the commodities market would therefore be a blessing in disguise.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.