Oil extends losses on China demand fears and amid Gaza ceasefire talks

• Oil prices fall for second straight trading day.
• Prices retreated as traders focused on fears over China’s demand and efforts to reach a ceasefire deal in Gaza.
• The US dollar index weakens further after hedge funds go long the Japanese yen, which appreciates against the greenback.

Oil retreats for the second session in a row as some tail risks come to the fore on Monday. Traders again fear weaker demand from oil importer China, weighing on overall market sentiment. Meanwhile, all eyes are on the Middle East, where a successful outcome of Gaza ceasefire talks could substantially reduce supply risks, according to Reuters. With two major risk premium events out of the price, further easing in crude oil prices could be at hand.

The US dollar index (DXY), which tracks the US dollar’s performance against six major currencies, is feeling the heat from the Japanese yen. Markets were rattled on Friday after the Commodity Futures Trading Commission (CFTC) reported that hedge funds returned to being net long the Japanese yen (JPY) for the first time since 2021. This hurt the greenback and spilled over into the DXY’s performance . , which is flirting with a break below 102 ahead of the Federal Reserve’s Jackson Hole Symposium later this week.

At the time of writing, crude oil (WTI) is trading at $75.03 and Brent at $78.71.

Oil and Markets News: China Demand Cuts

• Bloomberg reports that Iran rose $2.35 a barrel above the Oman-Dubai benchmark for September sales to Asia. The move is rather odd given that markets are worried about a slowdown in China.
• Weekly data from the Commodity Futures Trading Commission (CFTC) revealed that hedge funds are still long crude oil, even though price action has not outperformed over the past few weeks. Bloomberg reports that hedge funds could be forced to reduce their holdings if crude fails to gain ground this week, adding more selling pressure.
• Libya’s oil production rose by 300,000 barrels per day, Waha oil production returned to normal levels after maintenance, Reuters reports.
• The main risk must be taken into account with the Gaza ceasefire talks taking place in the coming days.

Oil Technical Analysis: This bounce has more room to work out

A big warning already appeared last week on the charts after oil prices could not break above the important 100-day simple moving average (SMA) around $78.45, a key technical level. With this rejection unfolding, the Relative Strength Index (RSI) on the daily chart is still trading fairly well in the middle of its range without looking oversold. This could mean more downside, particularly as hedge funds begin to reduce their stakes, triggering a further slide towards $72.00 or below.

In addition, it becomes very difficult to be optimistic with a lot of resistance levels nearby. The first item to watch is the $75.27 pivot. Next is the double level at $77.65, which aligns with both a downtrend line and the 200-day simple moving average (SMA). If the bulls manage to break through it, the 100-day SMA at $78.45 could trigger another rejection, as it did last week.

On the downside, the August 5 low at $71.17 is the best level for a bounce. It might not be a bad idea to start looking at levels below $70.00 if the ceasefire talks make progress and hedge funds start selling their speculative holdings in oil contracts. The high figure level of $68.00 is the first level to watch, followed by $67.11, which is the lowest point of the triple bottom seen in June 2023.

US WTI Crude Oil: Daily Chart