Oil and Natural Gas Technical Analysis Following China’s Inflation Decline

Crude oil prices dropped on Monday after China’s Consumer Price Index (CPI) increased by only 0.4% in September, missing the expected 0.7%. The lower-than-expected CPI points to weaker consumer spending in China, a major driver of global energy demand. This slowdown could lead to reduced consumption of oil and natural gas. Businesses and households scale back energy usage during economic downturns. Consequently, crude oil and natural gas (NG) prices dropped due to weaker demand and excess supply.

Moreover, deflationary pressure was reflected in China’s Producer Price Index (PPI) data. The PPI dropped by 2.8% year-over-year, marking the 24th consecutive month of deflation. This ongoing deflation signals a weakness in industrial demand. Since oil and natural gas are essential for industrial production, reduced factory activity negatively impacted the demand for these energy sources. WTI oil (CL) opened with a negative gap at $74.74, while Brent oil (BCO) opened with a gap at $77.37.

On the other hand, crude oil prices are being driven by tensions in the Middle East and the risk of supply disruptions. These risks were the prime reason for the oil rally in October. Additionally, Hurricane Milton has left millions in Florida without power, reducing the immediate demand for natural gas from power generators.

WTI Oil (CL) Technical Analysis

WTI Daily Chart – Break below 50 SMA

WTI crude oil has been consolidating between the 50 and 200 SMAs for the past few days. However, the price broke below the 50 SMA on Monday, signalling a potential downward move. The price is challenging last Wednesday’s low at $71.58. A break below this level would indicate increased bearish pressure. The RSI is declining from overbought levels, signalling further bearish momentum. As long as the price remains below the 200 SMA at $77.42, the overall trend remains bearish.

WTI 4-Hour Chart – Bearish Pressure within Ascending Channel

The 4-hour chart for WTI crude oil shows that the price is breaking below the midline of the ascending channel. The short-term momentum is bearish. The RSI signals a further downward move. The strong support level for WTI oil is $67.

Brent Oil (BCO) Technical Analysis

Brent Daily – 6-Month Trend Line

Brent oil has been trading below the six-month trendline, which extends from the April 2024 highs. However, the red-dotted trendline drawn from the July 2024 highs was broken, leading to a price increase. Currently, the price has broken below the 50 SMAs, which indicates bearish momentum. Geopolitical uncertainty in the Middle East is adding volatility to the oil market. Much of the market’s movement will depend on the resolution of the ongoing geopolitical crisis. The immediate support is the red dotted trend line at $74.

Brent 4-Hour Chart – Bearish Trend

The 4-hour chart also shows the bearish pressure within the downward trend. The immediate support is at the red-dotted trendline at the $74 level. The RSI on the 4-hour chart indicates that a further downward move is likely.

Natural Gas (NG) Technical Analysis

Natural Gas Daily Chart – Bearish Pressure within Wedge

Natural gas prices are trading within a wedge pattern and are currently dropping from the resistance of this wedge. The double bottom pattern around the $1.85 area within the wedge keeps the bullish case alive. However, strong support lies at the red dotted line between $2.10 and $2.20. This support is also intersected by the 200 SMA, reinforcing the area as a key support zone. Additionally, the RSI is dropping below the mid-level, signalling continued downward pressure on natural gas prices.

Natural Gas 4-Hour Chart –Ascending Broadening Wedge Pattern

The 4-hour chart shows a breakout from the ascending broadening wedge in natural gas prices. Prices are moving lower and are likely to continue declining. The RSI is approaching oversold levels, but the price has already completed its rebound. Therefore, prices are likely to drop further after some consolidation on the 4-hour chart. The actual target of the ascending broadening wedge pattern breakout is $1.87.