Over the last few weeks, recessionary fears have overtaken inflationary fears as the main driver of price action in financial markets with global central bank heads to market pundits fearing the worst for the months ahead. A series of out-sized interest rate hikes by various central banks, in a bid to temper red-hot price pressures, is set to, or are already weighing on global growth prospects as central banks see fighting inflation as their overriding priority. As recession fears grow, the oil will continue to aim lower.

The daily Brent Crude chart shows a topping-out pattern earlier this month with the $123.50/bbl. level tested and rejected four times. Price action since then has built a descending channel and has broken below both the 20- and 5-day simple moving average, with both breaks lower immediately confirmed. The price of Brent is now heading towards a zone of prior horizontal support between $100.83/bbl. and $95.60/bbl. with the 200-day moving average also appearing at the lower end of this range. The $100/bbl. the psychological level also sits just below the top of the support range and should provide the first real test for oil bears.
 

Brent Crude Daily Price Chart

(Click on image to enlarge)

If we look at US Crude Oil, IG retail trade data show58.24% of traders are net-long with the ratio of traders long to short at 1.39 to 1. The number of traders net-long is 11.49% higher than yesterday and 37.47% higher from last week, while the number of traders net-short is 14.91% lower than yesterday and 46.97% lower from last week.

We typically take a contrarian view of crowd sentiment, and the fact traders are net-long suggests Oil - US Crude prices may continue to fall. Traders are further net-long than yesterday and last week, and the combination of current sentiment and recent changes gives us a stronger Oil - US Crude-bearish contrarian trading bias.

What is your view on Crude Oil – bullish or bearish?