An opportunity to buy oil may have arrived: Read

Oil prices fell, with Brent crude hovering around $77 a barrel, prompting some market analysts to identify potential short-term buying opportunities. Citi Research, in a note dated Aug. 21 and seen by Investing.com, sees this price pressure as a likely precursor to a rebound despite the recent easing of geopolitical tensions.

The recent decline in prices is primarily driven by two key factors: the easing of geopolitical risks, particularly in Gaza, with a potential cease-fire on the horizon, and China’s economic slowdown. Weakened Chinese industrial production and weaker oil import data weighed heavily on the global demand outlook, contributing to a reduction in the geopolitical risk premium for oil.

However, Citi cautions that the market is not out of the woods yet. While the geopolitical landscape appears calmer, risks remain. Hurricane season poses a significant threat to oil supply chains, and continued tensions in North Africa and the Middle East could easily reignite volatility. The current market position is historically short, which could fuel a rally if Brent falls further, especially as it nears the $75 per barrel support level.

In the US, 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 pullback beat expectations and, along with rising refining counts and crude oil exports, adds a bullish slant to the near-term outlook for crude oil.

Citi also highlights the 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 key support. This technical setup could encourage buying if prices approach the lower end of this range.

Looking ahead, Citi suggests OPEC+ faces critical decisions. With production cuts set to ease in October – market conditions permitting – any further decline in prices towards the low $70s could prompt the group to reconsider its strategy. As refinery margins remain under pressure, particularly due to the decline in oil cracking, the upcoming winter season may be pivotal in shaping the direction of the market.

By Julianne Geiger for Oilprice.com

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