WTI falls out of the sky, but bulls could be lurking

• WTI drops like a stone on fears of a global recession and a strong US dollar.
• Bulls note that product inventories are at critically low levels, which suggests restocking will keep crude oil demand strong.

At 98.73, the price of oil is down 10.6% on the day after falling from a high of $111.42 to a low of $97.46. The black gold has drop like a stone on Tuesday due to the worries over the global recession and curtailing demand overshadowed a strike by Norwegian oil and gas workers that could cut exports and exacerbate supply shortages. However, the Union leaders have announced that the strike is over.

Investors are concerned over central banks across the world that is taking aggressive actions to limit inflation. Overnight, the Reserve Bank of Australia hiked by 50 basis points with more in the pipeline to come as per its hawkish statement. We are seeing safe-haven demand for US Treasuries that have also boosted the US dollar DXY by about 1.37% at the time of writing with traders taking it to a high of 106.792 on the day. This has also weighed on greenback-denominated oil as it becomes more expensive for buyers holding other currencies.

Bullish case for oil

Analysts at TD Securities noted, however, that ”product inventories are at critically low levels, which also suggests restocking will keep crude oil demand strong. Considering that little progress has been made towards solving structural supply challenges, even a slow rate of demand growth can endanger energy supply.”

In this context, the analysts argued that ”brent crude and distillates prices are also exhibiting strong asymmetry towards upside moves in demand, which could point to an uncoiling process should commodity demand rebound.”