Oil News: Bearish Oil Outlook as China Demand Weakens, Geopolitical Risks Remain High

Oil Prices Fall Amid China Demand Concerns and Geopolitical Uncertainty

Oil futures dropped sharply on Friday, with both Brent and West Texas Intermediate (WTI) crude posting weekly declines exceeding 7%. The fall in prices comes amid concerns over weakening demand from China, the world’s largest oil importer, and mixed signals from geopolitical tensions in the Middle East.

This marks the steepest weekly drop in oil prices since early September, when OPEC and the International Energy Agency (IEA) revised down their global oil demand forecasts for 2024 and 2025.

Technically, the key area to watch is the retracement zone at $71.63 to $69.21. It is controlling the longer-term direction of the market. It also settled on the weak side of both the 50-day moving average at $70.88 and the 200-day moving average at $72.90.

On Friday, Light Crude Oil Futures settled at $68.69, down $1.40 or -2.00%.

China’s Economic Slowdown Pressures Oil Demand

China’s economic growth decelerated in the third quarter, registering its slowest pace since early 2023. While some metrics like September’s consumption and industrial output slightly outperformed expectations, the overall picture for China’s economy remains bleak. A key factor in this slowdown is the country’s declining refinery output, which has dropped for six consecutive months. Thin refining margins and subdued fuel consumption have led to reduced processing rates, further curbing demand for crude oil.

Additionally, China’s rapid shift toward electric vehicles (EVs) is weighing heavily on oil demand. EV sales in the country surged by 42% in August, reaching over one million units for the first time. According to energy analysts, this trend is expected to further erode China’s future oil consumption as transportation increasingly electrifies.

Mixed Signals From the Middle East Add Uncertainty

Geopolitical tensions in the Middle East, particularly between Israel and Iran, have also been impacting oil prices. U.S. President Joe Biden indicated there could be an opportunity to temporarily ease the conflict, reducing the geopolitical risk premium in oil prices. However, escalating tensions with Hezbollah in Lebanon have rekindled concerns, especially after the killing of Hamas leader Yahya Sinwar.

Despite these hopes, investors remain wary of how the conflict may evolve. Markets are closely watching U.S. and Israeli responses to missile attacks from Iran, which could further destabilize the region and add volatility to oil prices.

U.S. Supply and Economic Data Offer Some Support

On the supply side, U.S. crude oil production continues to surge, hitting a new record of 13.5 million barrels per day (bpd) last week, according to the Energy Information Administration (EIA).

This rise in production, coupled with declining U.S. crude, gasoline, and distillate inventories, has helped provide a floor for prices. Additionally, stronger-than-expected U.S. retail sales data for September has eased some concerns about economic growth, with the market anticipating a potential rate cut by the Federal Reserve in November.

Market Forecast: Bearish in the Short Term

Given the current backdrop of weakening demand from China, geopolitical uncertainties, and rising U.S. production, the short-term outlook for oil prices appears bearish. While there are some positive signals from the U.S. economy, the prevailing demand concerns, particularly from China, are likely to keep oil prices under pressure in the near term. Traders should remain cautious as potential shifts in the Middle East and further economic updates from China could influence price direction.