Oil News: Bearish Outlook as Weak China Demand Outweighs Libya Supply Disruptions

Global Oil Market Overview

Oil prices continue to face downward pressure on Tuesday as concerns over weak demand, particularly from China, overshadow supply disruptions in Libya and the Middle East. Crude futures are lower, reflecting the market’s bearish sentiment despite some supportive factors.

At 10:25 GMT, Light Crude Oil futures are trading $72.36, down $1.19 or -1.62%.

Chinese Economic Slowdown

China’s economic indicators have raised alarm bells for oil demand. The country’s manufacturing PMI fell to a six-month low in August, while new export orders declined for the first time in eight months. Additionally, new home prices rose at their weakest pace this year, further highlighting the economic challenges facing the world’s largest crude importer.

Supply Disruptions Provide Limited Support

Libyan oil exports at major ports were halted on Monday due to political tensions, with production curtailed across the country. While this development typically would bolster prices, the impact has been limited due to uncertainty over the duration of the outages. Attacks on two oil tankers in the Red Sea off Yemen have also contributed to supply concerns, albeit modestly.

OPEC+ Production Increase and Saudi Price Cuts

OPEC+ is set to boost oil production by 180,000 barrels per day in October, gradually unwinding previous output cuts. Simultaneously, Saudi Arabia is expected to lower its crude oil prices for Asian buyers in October, with estimates ranging from 50 to 70 cents per barrel for Arab Light crude. These moves could potentially exert additional downward pressure on oil prices.

U.S. Demand Slump

Adding to the bearish outlook, U.S. oil consumption has slowed to its lowest seasonal levels since the pandemic. This decline in demand from the world’s largest oil consumer further compounds the global demand concerns.

Market Forecast

The short-term outlook for crude oil prices remains bearish. The combination of weak Chinese demand, increased OPEC+ production, and sluggish U.S. consumption outweighs the bullish factors of supply disruptions in Libya and the Middle East. Traders should anticipate continued price volatility, with a higher probability of further declines, especially if WTI crude fails to maintain support above the $70 per barrel level.

Technical Analysis

Light crude oil futures are trading lower and inside the major retracement zone at $73.43 to $71.02. This area has produced bottoms before so be careful shorting weakness and watch for a potential whip-saw.

To longer-term buyers, this zone represent value, but to short-term traders it represents potential trigger points for upside and downside breakouts.

On the upside, overcoming $73.43 will signal the presence of buyers. Regaining the 200-day moving average at $74.28 will indicate the buying is getting stronger.

On the downside, short-sellers face potential support at $71.46, $71.02, $70.50 and $69.50. I told you it is a difficult area to short.

With the former bottoms lined up at $69.50, $70.50 and $71.46, prices could plunge into the low $60’s if the buyers decide to step away.