Oil News: Bearish Outlook as Chinese Demand Slows, Middle East Tensions Ease

Oil Prices Slip as Chinese Demand Concerns Persist and Middle East Tensions Continue

Oil prices dropped on Monday, driven by persistent concerns over weakening demand in China, the world’s largest oil importer. Brent crude remained under the critical $80 per barrel mark, with market sentiment further dampened by the potential for decreased supply risks amid ongoing ceasefire discussions in the Middle East.

At 11:11 GMT, Light Crude Oil Futures are trading $74.81, down $0.73 or -0.97%.

Chinese Economic Weakness Weighs on Oil Markets

The decline in oil prices follows a nearly 2% drop last Friday, as investors adjusted their expectations for China’s demand growth. Recent data from China has exacerbated these concerns, showing a slowdown in industrial output, a sharp drop in new home prices—the fastest in nine years—and rising unemployment. These indicators suggest a faltering Chinese economy, which has led to reduced crude processing rates at Chinese refineries due to tepid fuel demand and weak profit margins. Additionally, July’s customs data revealed a significant decline in China’s diesel and gasoline exports, further highlighting the weakening demand for crude.

Middle East Tensions Provide Limited Support

Despite the bearish sentiment surrounding Chinese demand, geopolitical risks in the Middle East continue to offer some support to oil prices. U.S. Secretary of State Antony Blinken’s recent visit to Tel Aviv aimed at brokering a ceasefire in Gaza has added to the uncertainty. However, the ongoing violence and the lack of significant progress in negotiations have raised doubts about the success of these efforts. Tensions in the region, along with the ongoing Russia-Ukraine conflict, keep supply risks alive, preventing a more significant downturn in prices.

U.S. Economic Data Offers Some Relief

Contrasting the concerns from China, last week’s U.S. economic data provided a slight cushion for oil markets. Reports of moderating inflation and robust retail spending in the U.S. suggest a resilient economy, which helped both Brent and WTI benchmarks to close the week relatively unchanged despite the initial losses.

Market Forecast: Bearish Outlook

Given the prevailing concerns about weakening demand from China and the potential for reduced supply risks if Middle East tensions ease, the short-term outlook for oil prices remains bearish. Traders should monitor Chinese economic data closely, as further deterioration could push prices lower, despite the geopolitical tensions that are currently offering some price support.

Technical Analysis

Light crude oil futures are weaker on Monday, Although the market is trading inside a pair of moving averages, it is leaning toward the low-end of the range. On the downside, the support is the 200-day moving average at $74.29. The resistance is the 50-day moving average at $77.07.

Additional support is being provided by a long-term moving average at $74.02 to $71.64. The retracement zone resistance is $76.58 to $78.25.

Prices could chop around inside the moving averages until traders pick their side with conviction. This suggests we’re in a news driven market.