Crude Oil, WTI, Recession Woes, Falling Wedge - Talking Points:
- WTI crude oil is nearing a 10% loss this week, worst since March
- Such performance is not often, but is explained by recession woes
- Oil appears to be trading within a Falling Wedge chart formation
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![How to Trade Oil](https://a.c-dn.net/b/4twLPB/500x707HowtoTrade-CrudeOil.png)
![How to Trade Oil](https://a.c-dn.net/b/4twLPB/500x707HowtoTrade-CrudeOil.png)
WTI crude oil prices are shaping up for a disappointing week. Prices are down about 9.5 percent this week so far. On Wednesday, the commodity extended losses, closing at a new low for this year, touching the weakest point since the end of 2021. A loss of 10 percent this week would result in the worst 5-day performance since March.
Looking at the average weekly performance since 2020, we can use a probability density function to see just how often we can expect this kind of price action to occur. On the chart below, this week’s z-score is shaping up to be about -1.3, which represents the number of standard deviations the drop is from the average. In other words, the probability that crude oil weakens 9.5% or more in a week is about 10%.
It should be noted that past performance is not indicative of future results, but crude oil’s drop has been anything but random. Likely, a combination of more hawkish Federal Reserve policy expectations and rising recession concerns have been weighing on energy prices.
The closely watched spread between 10-year and 2-year Treasury yields continues to invert, which is often seen as a leading recession indicator. Overnight, China announced an easing of Covid-19 restrictions. That could bode well for oil. However, markets were hardly impressed as the outcome seemed to be largely priced in.
How is This Week Shaping up for Crude Oil?
![How is This Week Shaping up for Crude Oil?](https://a.c-dn.net/b/20ZF62/image1.png)
Crude Oil Technical Analysis – Daily Chart
WTI crude oil prices continue to extend losses since resuming the downtrend back in November. Prices appear to be trading within a Falling Wedge chart pattern. A breakout higher could open the door to a near-term reversal towards the November peak. Keep a close eye on the 100-day Simple Moving Average though. The latter may reinstate the downside focus. Breaking under the 100% Fibonacci extension level at 72.249 exposes May 2021 lows from 61.69 – 65.60.
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![Crude Oil Technical Analysis – Daily Chart](https://a.c-dn.net/b/2r0kM4/image2.png)
Chart Created Using TradingView
--- Written by Daniel Dubrovsky, Senior Strategist for DailyFX.com
To contact Daniel, follow him on Twitter:@ddubrovskyFX