Crude oil futures rise as bullish sentiment builds

Light crude oil futures rose sharply this week, supported by several key factors. Aggressive interest rate cuts by the US Federal Reserve, rising geopolitical tensions between Israel and Hezbollah, and a significant reduction in US crude inventories have all contributed to higher prices. However, concerns about weak demand in China remain a limiting factor, creating mixed sentiments in the market.

Fed rate cuts fuel economic optimism

The Federal Reserve’s decision to cut interest rates by 50 basis points gave the crude oil market a new boost. The rate cut, the first in more than four years, beat market expectations and is expected to boost economic activity by reducing borrowing costs. In turn, this could boost demand for energy, including crude oil, as businesses and consumers respond to easier financial conditions.

While the move has provided short-term support, it also raises concerns about the underlying strength of the US economy. Did the Fed’s action leave investors weighing whether future oil demand growth will be sustainable or whether it signals deeper economic challenges that could hurt energy consumption?

Geopolitical risks add to supply concerns

Rising tensions between Israel and Hezbollah have added a geopolitical risk premium to oil prices. Israeli airstrikes on Hezbollah positions in southern Lebanon this week have sparked fears of a wider Middle East conflict that could disrupt oil supplies…

Light crude oil futures rose sharply this week, supported by several key factors. Aggressive interest rate cuts by the US Federal Reserve, rising geopolitical tensions between Israel and Hezbollah, and a significant reduction in US crude inventories have all contributed to higher prices. However, concerns about weak demand in China remain a limiting factor, creating mixed sentiments in the market.

Fed rate cuts fuel economic optimism

The Federal Reserve’s decision to cut interest rates by 50 basis points gave the crude oil market a new boost. The rate cut, the first in more than four years, beat market expectations and is expected to boost economic activity by reducing borrowing costs. In turn, this could boost demand for energy, including crude oil, as businesses and consumers respond to easier financial conditions.

While the move has provided short-term support, it also raises concerns about the underlying strength of the US economy. Did the Fed’s action leave investors weighing whether future oil demand growth will be sustainable or whether it signals deeper economic challenges that could hurt energy consumption?

Geopolitical risks add to supply concerns

Rising tensions between Israel and Hezbollah have added a geopolitical risk premium to oil prices. Israeli airstrikes on Hezbollah positions in southern Lebanon this week have raised fears of a wider conflict in the Middle East that could disrupt oil supplies. Iran, a key OPEC member, is seen as a potential player in the conflict, raising concerns about possible disruptions to the region’s crude exports.

Analysts warn that an escalation could have a serious impact on global oil supply, leading to further price increases. While no direct disruptions have occurred yet, the situation remains fluid and traders are closely monitoring developments for any signs of worsening?

US crude stockpiles at lowest levels in one year

U.S. crude oil inventories fell to their lowest level in a year, according to the latest data from the Energy Information Administration (EIA). Crude oil inventories fell by 1.6 million barrels in the week ended September 13, bringing total inventories to 417.5 million barrels. That drop far exceeded analysts’ expectations for a draw of 500,000 barrels?.

The drawdown was exacerbated by Hurricane Francine, which disrupted port operations along the Gulf Coast, reducing U.S. crude imports by 1.8 million barrels per day. Inventories at the Cushing, Oklahoma hub, the key delivery point for U.S. crude futures, also fell by 2 million barrels to the lowest level in nearly a year. These developments have added upward pressure on oil prices as supply tightens domestically.

China’s sluggish demand is weighing on market sentiment

Despite these positive supply-side factors, weak demand signals from China are tempering market developments. As the world’s largest oil importer, China plays a critical role in global oil demand, but its economy has shown signs of slowing. August marked the fifth straight month of declines in refinery output, reflecting weaker industrial production and consumer demand. This has created a significant headwind for crude oil prices??.

While some analysts expect a rebound in Chinese demand later this year, the current slowdown has limited the potential for stronger price growth. Traders are watching closely for signs of improvement in China’s economic data, as any further weakness could dampen global demand forecasts.

Fuel inventories are building but remain below expectations

U.S. fuel stockpiles rose modestly, but accumulations were smaller than expected, adding to the mixed sentiment in the market. Stockpiles of distillates, which include diesel and heating oil, rose by 100,000 barrels, while gasoline stocks posted minor gains. Did these lower-than-expected releases help support gasoline and heating oil futures even as crude stocks tightened?

Refinery utilization rates eased slightly, falling 0.7% to 92.1% of total capacity, reflecting reduced crude production. Does this suggest that US refiners are processing less crude oil, which may lead to more tight supply if the trend continues?

Weekly light crude oil futures

Trend indicator analysis

The main trend is down. However, the confirmation of the closing price reversal at the end of the week of September 12 changed the momentum to the upside. The main trend will change upwards on a trade through $80.71. A trade through $64.04 will cancel the reversal low 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 medium-term range is $61.98 to $82.43. Light crude futures (WTI) are currently trading in its retracement zone at $69.79 to $72.21. With the main trend down, it has the potential to develop into resistance.

Weekly technical forecast

The direction of the light crude oil futures market for the week ending September 27 will likely be determined by the trader’s reaction to $69.79.

Optimistic scenario

A sustained move above $69.79 will signal the presence of strong countertrend buyers. If this creates enough short-term momentum, then we could see a test of the intermediate 50% level at $72.21, followed by the longer-term 50% level at $75.10. This is a key balance point on the weekly chart. A test of this level could bring in sellers.

Bearish scenario

Failure to hold $69.79 will indicate a reversal for sellers. It will also confirm that the market is still in sell the rally mode. This could lead to a quick test of the minor pivot at $68.67 followed by $64.04. If the pullback to these levels brings in new buyers, then watch for a long rally to begin.

Market Outlook: Cautiously optimistic outlook

Overall, the outlook for crude oil prices remains bullish in the near term. The combination of aggressive Fed rate cuts, tightening US crude inventories and escalating geopolitical tensions in the Middle East provide strong support for higher prices. A break above key resistance at $72.21 could trigger further gains, with the potential for prices to rise significantly if tensions in the Middle East escalate??

However, weak demand signals from China and concerns about global economic growth may limit the extent of any rally. Traders should watch for a possible pullback if China’s economic data continues to disappoint or if US fuel inventories rise more than expected in the coming weeks.

In the near term, the bullish momentum appears intact, but risks from slowing demand could introduce volatility and cap gains.

For now, traders should watch the resistance area from $69.79 to $72.21 as a key pivot. A break above this area could push crude oil futures higher, while a failure to hold on to recent gains may prompt a retest of support around $68.67. With uncertainty looming on several fronts, the market remains poised for increased volatility in the coming weeks.