Oil prices have dipped, with Brent crude hovering around $77 per barrel, leading some market analysts to spot potential short-term buying opportunities. Citi Research, in a note dated August 21, and seen by Investing.com, sees this price pressure as a likely precursor to a rebound despite recent easing in geopolitical tensions.
The recent price decline is primarily driven by two key factors: easing geopolitical risks, particularly in Gaza with a potential ceasefire on the horizon, and China's economic slowdown. China's weakened industrial production and softer oil imports data have weighed heavily on the global demand outlook, contributing to a reduction in the geopolitical risk premium for oil.
However, Citi warns that the market isn't out of the woods yet. While the geopolitical landscape appears calmer, risks remain. Hurricane season poses a significant threat to oil supply chains, and ongoing tensions in North Africa and the Middle East could easily reignite volatility. The current market positioning is historically short, which could spur a rebound if Brent dips further, especially as it nears the $75 per barrel support level.
In the U.S., the Energy Information Administration (EIA) reported a significant drop in commercial crude oil inventories, which fell by 4.6 million barrels to 426 million barrels. This draw exceeded expectations and, along with increases in refinery runs and crude exports, adds a bullish tilt to the near-term outlook for crude.
Citi also highlights technical factors influencing the market. Brent's 200-day moving average at $82.5 per barrel is a strong resistance point, while the $75 per barrel level serves as a key support. This technical setup could encourage buying if prices approach the lower end of this range.
Looking forward, Citi suggests that OPEC+ faces critical decisions. With production cuts set to ease in October—market conditions allowing—any further decline in prices toward the low $70s might prompt the group to reconsider its strategy. As refinery margins remain under pressure, especially from plummeting gasoil cracks, the upcoming winter season may be pivotal in shaping the market's direction.
By Julianne Geiger for Oilprice.com