This week, crude oil prices faced sharp declines due to a confluence of factors that weighed heavily on market sentiment. Concerns over weak demand, particularly from China, and the easing of supply risks in the Middle East were central to the downward pressure on prices. Simultaneously, a series of reports from major institutions like the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC) lowered global demand forecasts for 2024, reinforcing the bearish outlook.
China's Economic Slowdown Hits Demand Expectations
One of the most significant drivers behind the drop in oil prices was renewed concern over China’s slowing economy. China, as the world’s largest importer of crude oil, plays a pivotal role in shaping global demand. Throughout the week, weak economic data from China, including persistently low inflation and sluggish consumer demand, added to fears that the country’s oil consumption might underperform expectations. Despite Chinese government promises of stimulus measures, the lack of concrete action or significant fiscal boosts left markets jittery. This uncertainty, combined with the deflationary signals from the world’s second-largest economy, prompted investors to downgrade their outlook on future oil demand??.
OPEC echoed these concerns, cutting its demand forecast for China. The organization now expects China’s oil demand growth to reach only 580,000 barrels per day (bpd) in 2024, down from a previous estimate of 650,000 bpd. This revision played a major role in sending both Brent and West Texas Intermediate (WTI) prices down, as markets adjusted to the prospect of weaker consumption growth in the year ahead??.
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Middle East Geopolitical Tensions Ease, Supply Fears Subside
Geopolitical risks also played a notable role in oil price movements this week. Tensions between Israel and Iran, which had previously buoyed oil prices on concerns of potential supply disruptions, began to ease. Reports emerged that Israel might refrain from targeting Iranian oil infrastructure, a move that would have potentially disrupted global oil flows. This news significantly reduced the "war premium" that had been factored into prices in recent weeks?. As a result, the market began to unwind some of the recent gains, sending prices lower as the risk of an immediate supply shock diminished.
The easing of Middle East tensions coincided with a broader assessment of global oil supplies, with analysts pointing out that despite ongoing geopolitical concerns, the market remains well-supplied. U.S. crude oil production hit a record high of 13.5 million bpd, further reassuring markets that any disruptions could be mitigated by robust production levels from non-OPEC producers?.
Lower Demand Projections Weigh on Market Sentiment
Both OPEC and the IEA issued reports this week downgrading their global oil demand forecasts for 2024 and 2025. OPEC reduced its forecast for global demand growth to 1.93 million bpd for 2024, marking the third consecutive downward revision. The IEA was even more bearish, projecting demand growth of just 900,000 bpd next year. These lower expectations are primarily driven by weak demand in China, a slowing global economy, and a shift towards cleaner energy sources such as natural gas and renewables??.
The divergence between the OPEC and IEA forecasts highlights differing perspectives on the pace of demand recovery, but both reports point to a well-supplied market in 2024, which adds to the downward pressure on prices. The IEA specifically pointed to increasing production from countries like the U.S., Brazil, and Canada as key contributors to the expected surplus next year??.
U.S. Inventory and Production Data: A bullish sliver of news?
In addition to demand concerns, U.S. inventory data also played a role in shaping the week’s price action. The Energy Information Administration (EIA) reported a drawdown in U.S. crude inventories, with stocks falling by 2.2 million barrels. This would typically provide support for prices; however, the overall market response was muted due to the broader demand outlook. Despite the drawdown, U.S. production continues to rise, further dampening any bullish sentiment. Weekly EIA crude production data suggest that output has risen to a record 13.5 million bpd, signaling that supply remains abundant even in the face of geopolitical risks?.
The drop in inventories, while providing some short-term relief, was overshadowed by the larger narrative of oversupply in the coming year. This reinforced the prevailing bearish sentiment, with traders more focused on the bigger picture of global supply and demand balances rather than temporary inventory fluctuations.
Weekly Light Crude Oil Futures
The main trend is down. It will change to up on a trade through $80.71. A trade through $64.04 will negate the reversal bottom and signal a resumption of the downtrend.
The long-term range is $88.21 to $61.98. The market is currently trading on the bearish side of its 50% level at $75.10. The price level is a potential trigger point for an acceleration to the upside.
The intermediate-term range is $61.98 to $82.43. The market is currently testing its retracement zone at $69.79 to $72.21. Bullish counter-trend traders are trying to defend this zone in an effort to form a potentially bullish secondary higher bottom. Bearish trend traders are hoping for an acceleration to the downside through $69.79.
Weekly Technical Forecast
The direction of the Weekly Light Crude Oil Futures market the week-ending October 25 is likely to be determined by trader reaction to $72.21.
Bullish Scenario
A sustained move over $72.21 will signal the presence of strong counter-trend buyers. If this creates enough near-term momentum then we could see a test of the major 50% level at $75.10. Overcoming this level with conviction could put potential upside targets at $77.76, $80.71 and $82.43 on the radar.
Bearish Scenario
A failure to hold $72.21 will indicate that strong selling pressure is building. It will also confirm that the market is still in “sell the rally” mode. This could drive prices toward support at $69.79. If this fails then prices could collapse down to $64.04.
Outlook: Bearish Near-Term Forecast
Given the combination of weak demand expectations from China, lower global demand forecasts from both OPEC and the IEA, and the easing of Middle East supply risks, the outlook for crude oil prices remains bearish in the near term. While geopolitical factors and U.S. inventory data may provide intermittent support, the broader trends suggest that prices are likely to face continued downward pressure.
With China’s economic recovery still in question and global production levels remaining high, traders should prepare for the possibility of crude prices testing lower support levels in the weeks ahead. If Chinese stimulus measures fail to materialize or U.S. production continues to hit record levels, oil prices could face further declines, potentially moving into the $64 to $62 per barrel range??.
In the absence of any significant geopolitical disruptions or unexpected demand surges, the crude oil market is likely to remain under pressure heading into 2025.
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