The WTI Futures React to US Credit Downgrade: Will Supply Cuts Grant Respite?  

The WTI Futures (NYMEX: CL) experienced a decline as Fitch downgraded the United States’ credit rating, leading to risk-off sentiment. The country’s credit downgrade from AAA to AA+ raised concerns about the sustainability of its substantial debt, which may force the US to devise a plan or risk further downgrades. 

Despite the initial setback, the WTI Futures rebounded after a 4% tumble, thanks to additional supply cuts. The US crude oil inventories witnessed a significant decrease of 17 million barrels last week, the most substantial drawdown since 1980. Furthermore, Saudi Arabia, a member of OPEC+, announced an output cut of 1 million barrels per day (bpd), potentially boosting demand alongside the reduction in US inventories. Will oil prices defy expectations and increase, or are they on a path towards further decline? 


The WTI Futures have formed an ascending channel pattern on the 4H Chart, which has established a strong upward trend. Since finding major resistance of $82.45 per barrel (BLL) at the upper boundary of the channel, the price action ticked lower and intersected below the 50-day moving average, but a slight leg up aligned the price action with the 50-day moving average.  

If the leg up sustains an upward trend, the major resistance of $82.45/BLL may pave the way towards the channel’s upper boundary, marking an upward trend. However, a weakening demand could encourage a pullback towards the $78.82/BLL support at the 23.60% Fibonacci level as the price action fell short of this support level. If a breakdown of the $78.82/BLL support occurs, the price action may succumb to lower levels of support at $76.58/BLL or $74.01/BLL, respectively. 


The WTI Futures rebounded after tumbling by 4%, which could encourage a leg up towards the $82.45/BLL major resistance. However, demand constraints could encourage a pullback towards the $78.82/BLL support, which may pave the way for a reversal if the price action intersects below the lower boundary of the channel. 

Sources: TradingView, Reuters, Trading Economics 

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