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Oil Bulls: Is a Recession Coming?

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US crude oil last week

On March 15–22, US crude oil May futures rose 0.4% and closed at $59.04 per barrel. Last week, the contraction in Germany’s PMI index increased concerns about a global economic slowdown, which might have dragged US crude oil prices 1.6% on March 22.

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Possible recession

On March 22, the US 10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity yield spread fell just below zero for the first time since August 8, 2007. In the last three decades, when the yield spread turned negative, a recession started the next year. Oil is a growth-driven asset. Oil would likely be impacted negatively by any weakness in the US economy. The above analysis could be important for upstream stocks like ConocoPhillips (COP), Hess (HES), and Chesapeake Energy (CHK) and broader market indexes like the S&P 500 Index (SPY).

Important price points this week

On the upside, $61.54 could be an important level for US crude oil until the end of March. US crude oil active futures’ 20-day moving average at $57.36 will likely be an important level to watch this week. The 200-day moving average at $61.91 will likely be a strong resistance zone for US crude oil going forward.

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