Oil News: Crude Futures Rebound, But China Demand Concerns Cloud Outlook

Oil Prices Steady After a 7% Drop, China Demand Uncertainty Weighs on Market

Light crude oil futures are seeing a modest rebound on Monday, as traders look to establish a new support level after last week’s sharp 7% decline. This drop marked the market’s worst weekly performance since early September, driven by concerns over demand in China and easing fears about supply disruptions in the Middle East. The recent dip brought prices to test the long-term Fibonacci support at $69.21, a key technical level that traders are watching closely.

At 10:20 GMT, Light crude oil futures are trading $69.77, up $1.08 or +1.57%.

Technical Resistance Levels at Play

While traders hope to solidify a floor at $69.21, several overhead resistance levels could limit the upside potential. These include the 50-day moving average at $70.80, the long-term 50% retracement at $71.63, and the 200-day moving average at $72.92. A break above these levels is essential to shake off the current rangebound behavior in the market. Should prices fail to hold above $69.21, downside targets of $65.75 and $63.46 could come into play, reflecting further selling pressure.

China’s Weak Oil Demand and Surplus Crude Supplies

A significant factor pressuring oil prices is the weak demand outlook in China, the world’s largest oil importer. Data released last week revealed that China’s refinery throughput in September fell for the sixth consecutive month, highlighting sluggish domestic demand. Refiners processed 14.29 million barrels per day (bpd) in September, down 5.4% year-on-year, while crude imports also dipped 0.6%, marking the fifth straight month of declining imports.

This drop in refinery activity has left China with nearly 1 million bpd of surplus crude for September, exacerbating concerns over the country’s oil demand. Over the first nine months of the year, China has imported more crude than required, leaving a surplus of 1.1 million bpd. Clyde Russell at Reuters suggests that this trend of surplus crude, likely being stored, paints a weak picture of China’s oil sector. The mismatch between imports and refining needs suggests that Chinese refiners have been strategically buying on price dips.

OPEC’s China Growth Forecasts Look Optimistic

Despite weak data, Saudi Aramco’s CEO remains “fairly bullish” on China’s oil demand, citing stimulus measures and rising demand for jet fuel. However, the optimism contrasts with reality, as China’s imports have fallen 350,000 bpd year-to-date, casting doubt on OPEC’s forecast of a 580,000 bpd increase in Chinese demand for 2024. The discrepancy between actual import figures and optimistic growth forecasts raises concerns that the market may have overestimated the recovery in Chinese oil demand.

Market Outlook: Rangebound With Bearish Pressure

Oil prices are expected to remain rangebound in the near term, as traders weigh technical resistance levels and the uncertain demand picture from China. Until prices break above the key moving averages, upside potential will remain limited. The weak demand outlook from China, coupled with rising U.S. production and global economic concerns, suggests a bearish bias, with a potential test of lower support levels likely if current technical levels fail to hold.