Ending a four-week losing streak for oil?

Crude oil prices recap: Key drivers of last week’s market moves

Crude oil prices have seen notable volatility this week, with a combination of supply-side disruptions and ongoing demand concerns shaping the market. While temporary supply constraints created some upward pressure, weak global demand, particularly from China, strongly influenced price dynamics.

Hurricane Francine’s impact on US oil supplies

Hurricane Francine was a significant catalyst driving oil prices higher midweek. The storm, which hit the US Gulf of Mexico, shut down about 730,000 barrels per day (bpd) of oil production. This represented approximately 42% of the region’s total production, with additional disruptions in natural gas production also reported. Major US oil firms, including Chevron and ExxonMobil, were forced to halt operations and assess potential damage to offshore platforms and refineries. As a result, crude oil futures rose more than 2%, with prices briefly climbing above $68 a barrel?.

Despite the supply concerns caused by Francine, the storm has been downgraded to a tropical depression, and much of the production in the Gulf of Mexico is expected to recover relatively quickly. Traders have already begun to shift their focus away from the storm, looking instead at the broader demand outlook??.

US inventory draws support price increases

Adding to the supply pressure was a substantial reduction in US crude inventories. American oil…

Crude oil prices recap: Key drivers of last week’s market moves

Crude oil prices have seen notable volatility this week, with a combination of supply-side disruptions and ongoing demand concerns shaping the market. While temporary supply constraints created some upward pressure, weak global demand, particularly from China, strongly influenced price dynamics.

Hurricane Francine’s impact on US oil supplies

Hurricane Francine was a significant catalyst driving oil prices higher midweek. The storm, which hit the US Gulf of Mexico, shut down about 730,000 barrels per day (bpd) of oil production. This represented approximately 42% of the region’s total production, with additional disruptions in natural gas production also reported. Major US oil firms, including Chevron and ExxonMobil, were forced to halt operations and assess potential damage to offshore platforms and refineries. As a result, crude oil futures rose more than 2%, with prices briefly climbing above $68 a barrel?.

Despite the supply concerns caused by Francine, the storm has been downgraded to a tropical depression, and much of the production in the Gulf of Mexico is expected to recover relatively quickly. Traders have already begun to shift their focus away from the storm, looking instead at the broader demand outlook??.

US inventory draws support price increases

Adding to the supply pressure was a substantial reduction in US crude inventories. The American Petroleum Institute (API) last week reported a larger-than-expected decline of 2.79 million barrels, well above the anticipated build of 700,000 barrels. Gasoline stocks also fell, further supporting the upward trend in prices. Did this inventory data, combined with hurricane-induced production losses, prompt traders to cover short positions, adding more fuel to the price recovery?

OPEC demand forecasts and market sentiment

While supply-side disruptions provided short-term support for oil prices, global demand concerns, particularly from China, prevented the market from recovering further. OPEC revised down its global demand growth forecast for both 2024 and 2025, citing weaker-than-expected demand from China. The cartel now expects demand to rise by 2.03 million bpd in 2024, down from earlier estimates.

China’s crude oil imports rebounded in August to the highest level in years, but this was driven largely by refiners taking advantage of lower prices rather than a rebound in consumption. The demand outlook for China remains weak, with imports for the first eight months of 2024 still 3.1% below year-ago levels. Has this continued fragility of demand, coupled with the slowdown in the global economy, tempered any optimism in the market?

The role of Saudi Arabia and ongoing OPEC+ supply cuts

Saudi Arabia, OPEC’s largest producer, continued to play a key role in market trends. The kingdom has increased its crude supplies to China, offering lower prices to Asian refiners to boost demand. However, despite this effort, Saudi Arabia’s oil exports fell overall in 2023, highlighting the persistent challenges facing OPEC+ in maintaining market balance amid weak demand.

Has OPEC+, which has been implementing output cuts from 2022, delayed a planned 180,000 bpd output increase until December in response to recent price weakness? However, these efforts may not be enough to offset broader demand weakness and oversupply concerns, especially as traders remain skeptical of OPEC’s ability to maintain compliance with production cuts at lower levels of prices?

US economic data adds to concerns about demand

The broader US economy also added to the bearish sentiment. Last week, US gasoline demand hit its lowest level since May, according to the Energy Information Administration (EIA), and has distillate consumption followed suit? Despite higher crude oil imports, overall demand for refined products remains weak, contributing to rising inventories and dampening market sentiment. Economic data from both the US and Europe suggested that global growth could slow in the coming months, further curbing demand for crude oil.

Weekly light crude oil futures

Trend indicator analysis

The main trend is down. It turned down the week ending September 6 when $69.50 failed as support. The trend will change to upside at a move of $81.94. As of Thursday’s close, the market is trading higher for the week, putting it in position to form a potentially bullish closing price reversal low and end a four-week losing streak.

The long-term range is $89.44 to $63.21. The market is currently trading on the bearish side of its 50% level at $76.32.

The medium-term range is $63.21 to $83.66. Its retracement zone from $71.02 to $73.43 is resistance.

Weekly technical forecast

The direction of the weekly light crude oil futures market at the end of the week of September 20 will likely be determined by the trader’s reaction to $67.67.

Optimistic scenario

A sustained move above $67.67 will signal the presence of strong buyers. If this creates enough near-term momentum, then we could see a rally to the 61.8% level at $71.02, followed by the 50% level at $73.43.

Bearish scenario

If bearish traders strongly defend $71.02, then this will be a sign that we are in “sell the rally” mode. If $67.67 fails, then look for the sell to possibly extend from $65.27 to $63.21. Whether the market accelerates downward or steps lower will be determined by selling volume and volatility.

Market Outlook: Bearish in the short term

Looking ahead, the crude oil market faces a challenging landscape. While near-term supply constraints from Hurricane Francine and US inventory draws may provide limited support, weak demand remains the dominant force. China’s fragile recovery, coupled with a global economic slowdown, is likely to limit any sustained price growth. Resistance is expected between $71.02 and $73.43, sellers likely to re-emerge at these levels??. OPEC’s downward revisions to demand and the continued threat of oversupply suggest prices may struggle to break out of their current range. In the coming week, traders should anticipate a bearish outlook, with prices likely to revise the support zone around $65.27 to $63.21 per barrel.