On January 14, US crude oil February futures fell 2.1% and settled at $50.51 per barrel. The Energy Select Sector SPDR ETF (XLE) fell 0.2% on the same day. Until January 18, on the downside, the closing level of $49.29 will likely be important for US crude oil.
Goldman Sachs (GS) expects the bottom-line growth rate to fall in the United States and Europe, based on a CNBC report. However, the investment banker doesn’t see any threat of a recession in 2019. A fall in the growth rate might be a concern for a growth-driven asset like oil. This week, the IEA’s global oil supply and demand estimates could be an important factor to watch.
On January 14, the US 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity yield spread was at ~23 basis points— nine basis points above the lowest level since August 14, 2007, on January 3. Investors’ demand for a longer-dated security compared to a shorter-dated security might be one of the reasons behind the contraction in the spread.
In the last three decades, when the yield spread turned negative, a recession started the next year. Another contraction in the yield spread might increase the concerns about oil’s demand.
The S&P 500 Index (SPY) and the Dow Jones Industrial Average Index (DIA) fell 0.5% and 0.4%, respectively, on January 14. The fall in equity indexes due to concerns about the earnings might have dragged oil prices. In the last month, equity indexes’ decline made oil’s decline sharper.
On the supply side, OPEC’s supply cuts in 2019 might be a turning point for oil prices. However, the inventory at 8% above the five-year average with no sign of a reduction could still be a problem for oil prices, which we’ll discuss in Part 3.
US crude oil is below key moving averages
On January 14, US crude oil futures were 4%, 17.8%, and 22.2% below their 50-day, 100-day, and 200-day moving averages, respectively. On the same day, US crude oil prices moved 5.3% above their 20-day moving average. US crude oil prices being above the short-term moving averages indicates short-term momentum in oil.
US crude oil futures’ 50-day moving average fell below the 200-day moving average on November 26. Since then, the difference has been widening. In technical terms, the crossover is called a “death cross.” Usually, the crossover is followed by more weakness. The crossover might pressure oil prices.