Demand concerns offset Libyan disruptions in a volatile week for oil prices

Crude oil prices have faced significant volatility this week driven by a combination of geopolitical tensions, supply disruptions and economic concerns. Market direction was heavily influenced by events in the Middle East, fluctuations in US economic data and ongoing issues in Libya, culminating in a mixed outlook by the end of the week.

Middle East tensions and supply disruptions in Libya

Earlier in the week, crude oil prices rose more than 1 percent as tensions in the Middle East escalated, with fears that the ongoing conflict in Gaza could disrupt regional oil supplies. Over the weekend, Hezbollah’s aggressive actions against Israel, including the firing of rockets and drones, exacerbated these concerns. While there was no immediate impact on oil production, were the geopolitical risks enough to push prices higher?

Simultaneously, supply disruptions in Libya contributed to market volatility. On Thursday, it was reported that more than half of Libya’s oil production had been halted due to a standoff between rival political factions. That outage, estimated at about 700,000 barrels a day, has sparked fears of tighter global supply. The situation in Libya remains precarious, the risk of further production cuts reaching up to 1 million barrels per day??.

US economic data and Federal Reserve actions

US economic data presented a mixed bag this week, further weighing on oil prices. The potential for an interest rate cut by the US Federal Reserve suggested…

Crude oil prices have faced significant volatility this week driven by a combination of geopolitical tensions, supply disruptions and economic concerns. Market direction was heavily influenced by events in the Middle East, fluctuations in US economic data and ongoing issues in Libya, culminating in a mixed outlook by the end of the week.

Middle East tensions and supply disruptions in Libya

Earlier in the week, crude oil prices rose more than 1 percent as tensions in the Middle East escalated, with fears that the ongoing conflict in Gaza could disrupt regional oil supplies. Over the weekend, Hezbollah’s aggressive actions against Israel, including the firing of rockets and drones, exacerbated these concerns. While there was no immediate impact on oil production, were the geopolitical risks enough to push prices higher?

Simultaneously, supply disruptions in Libya contributed to market volatility. On Thursday, it was reported that more than half of Libya’s oil production had been halted due to a standoff between rival political factions. That outage, estimated at about 700,000 barrels a day, has sparked fears of tighter global supply. The situation in Libya remains precarious, the risk of further production cuts reaching up to 1 million barrels per day??.

US economic data and Federal Reserve actions

US economic data presented a mixed bag this week, further weighing on oil prices. The potential for an interest rate cut by the US Federal Reserve, hinted at by Federal Reserve Chairman Jerome Powell, initially supported oil prices. Lower interest rates typically stimulate economic activity, which in turn can increase demand for oil. However, this optimism was tempered by disappointing data on global oil consumption growth and thin refiner profit margins, which pointed to sluggish demand.

In addition, U.S. crude oil inventories fell by 846,000 barrels, a smaller drop than the 2.3 million barrels expected. That smaller-than-expected cut added to concerns about demand, sending oil prices lower after a brief rally earlier in the week.

OPEC+ decisions on production and the global supply outlook

Continued supply disruptions in Libya and the Middle East have led market participants to closely monitor OPEC+ production plans. With Libya’s production set to fall by nearly 1 million barrels per day, OPEC+ faces a critical decision at its next meeting. If the disruptions continue, OPEC+ may choose to delay any planned production increases to prevent further price falls. However, any reduction in Libyan unrest or easing of geopolitical tensions could complicate these decisions??.

Weekly light crude oil futures

Trend indicator analysis

The main trend is up, but the secondary lower peaks at $83.66 and $81.94 are signs of a bearish trend. A trade through $78.99 will change the momentum back to the upside. A move to $70.50 will reaffirm bearish momentum. The main trend will change down to a move of $69.50.

As of Thursday’s close, the market is trading higher for the week, putting it in position to snap a two-week losing streak.

The short-term range is $83.66 to $69.50 with a pivot at $76.58. The minor range is from $69.50 to $81.94 with a pivot at $75.72. The two pivots form an important price group that can control the direction of the short-term trade. This week, traders spent a lot of time riding the pivot zone, trying to establish a direction.

The strongest retracement zone from $73.43 to $71.02 is solid support. Essentially, it controls the intermediate-term direction of the market, providing hope for the bulls and a potential trigger point for a steep decline for the bears.

Additionally, the five-week trade between the 50% levels at $73.43 and $76.58 suggests a limited trade with traders reflecting the ongoing battle between supply and demand forces.

Recent price action clearly indicates that traders believe that $70.50 to $69.50 is a value zone.

Weekly technical forecast

The weekly direction of the light crude oil futures market at the end of the week of September 6 will likely be determined by the trader’s reaction to $75.00.

Optimistic scenario

A sustained move above $75.00 will signal the presence of strong buyers. If this creates enough short-term momentum, then we could see another test of $76.58 to $78.25. The latter is a potential trigger point for an acceleration to $78.99 followed by $81.94.

Bearish scenario

A sustained move below $75.00 will indicate the presence of sellers. If it generates enough downward momentum, then we could see a retest of the major support area at $73.43 to $71.02, followed by the lower low at $70.50 and the major low at $69.50. If the main bottom fails to hold, then look at the bottom.

Market Outlook: Mixed outlook with potential for volatility

Given current market conditions, the outlook for crude oil prices remains mixed. On the one hand, the demand outlook is bearish, especially with ongoing concerns about global economic growth and weaker-than-expected oil consumption. However, the possibility of significant supply disruptions in Libya and the Middle East is keeping traders on edge, allowing for speculative buying that could lead to periodic short-covering rallies.

This situation creates a market environment where prices are likely to experience volatility, driven by the push and pull of demand concerns versus supply risks. Traders should remain alert to developments in both economic data and geopolitical events, as these will be instrumental in determining the market’s next moves.

Technically, the crude oil market is capped, with the retracement zone from $76.58 to $78.25 providing resistance and the retracement zone from $73.43 to $71.02 providing support.

After seeing choppy, two-sided trading throughout the week, it appears that $75.00 is the balance point that will dictate the direction of the market next week.