Oil sees quiet recovery, markets see OPEC supply bigger concern than Libya production cuts

• Oil is subject to mild gains after rising above $77.00 on Monday.
• Analysts are expressing concerns about supply after the sudden disruption of Libyan barrels in the markets.
• The US dollar index is trading below 101.00 again as its recovery is already easing.

Oil traders appear to be taking profits on Tuesday after prices broke through a very steep three-day rally that bounced back ahead of a key technical area near $77.60. Markets are digesting Libya’s sudden shutdown of oil production in a local political dispute between the Benghazi government and the officially recognized government in Tripoli over who should become the next central bank president. Analysts said the disruption to Libya’s supply could not be easily replaced as it relates to Light Sweet Crude, which is in high demand because it can be more easily fractionated into gasoline or kerosene.

The US dollar index (DXY), meanwhile, is taking profits after its recovery lasted just one day. Markets continue to deal with substantial interest rate cuts by the US Federal Reserve (Fed). In this scenario, the biggest risk is that strong data from the US could ease or even reduce future rate cuts if the US economy overheats again.

At the time of writing, crude oil (WTI) is trading at $76.57 and Brent at $79.99.

Oil News and Market Development: Issues Ahead for Sweet Crude Demand

• Marketwire reports that several analysts have serious problems with the sudden shutdown of Libya’s oil fields because they produce light sweet crude that is in high demand in the markets.
• Recent data from China shows that Chinese oil refineries are facing much lower demand as electric vehicle (EV) sales are booming in China. The sector is already on the back foot due to a slowdown in demand from the manufacturing and construction sectors, a Bloomberg report showed on Tuesday.
• Goldman Sachs joins Morgan Stanley in cutting its Brent forecast to $77.00 a barrel by 2025 as OPEC likely moves to reverse its voluntary supply cuts.
• The American Petroleum Institute will release weekly crude oil inventory figures for the week ending August 23 at 20:30 GMT. Analysts expect a cut of 3 million barrels.

Oil Technical Analysis: OPEC production reopening remains an issue

Oil sprinted higher to a technical intersection near $77.60. From that level onwards, towards $79.00 almost four different resistances will cap the price of oil. The trifecta of the simple moving average (SMA) and the downtrend line should do the trick in keeping price action down at current levels. With bearish revisions from Goldman Sachs and Morgan Stanley, this could be the end of the line for Crude’s recent rally.

On the upside, the dual level of $77.65 aligns with both a downtrend line and the 200-day simple moving average (SMA). If the bulls are able to break through it, the 100-day SMA at $78.45 could trigger a rejection.

On the downside, the August 5 low at $71.17 appears as the first support. Below $70.00, the high 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