Oil Price Forecast: China’s Weak Economic Data Weighs on WTI Oil

Highlights

• WTI oil prices drop due to concerns over reduced demand from China.
• US debt ceiling bill has some positive impact on crude oil market.
• OPEC+ meeting and mixed signals affecting WTI oil prices.

China Demand Concerns

WTI crude oil prices in the US continued to drop on Wednesday due to concerns about reduced demand from China, the largest oil importer. These concerns arose after China released economic data that was weaker than expected. Despite some positive developments regarding the US debt ceiling bill, the impact of China’s economic data outweighed the positive news, leading to further losses in oil prices.

At 05:30 GMT, WTI Oil is trading $69.088, down $0.429 or -0.62% with earlier gains reversed after China manufacturing data was released. The benchmark fell by more than 4% on Tuesday. Yesterday, the United States Oil Fund ETF (USO) settled at $62.29, down $2.51 or -3.87%. US WTI is on track for a monthly decline of more than 9%.

Boosted by US Debt Ceiling Agreement

In the United States, crude oil traders experienced a slight boost in confidence when President Joe Biden and House Speaker Kevin McCarthy reached an agreement on legislation that aims to raise the U.S. debt ceiling of $31.4 trillion. This legislation also includes new federal spending cuts. The proposal successfully cleared an important hurdle on Tuesday and is now set for further discussion and a vote in the full House of Representatives on Wednesday. If the legislation is passed, it is expected to alleviate concerns about the debt ceiling and reduce the need for further negotiations until the presidential election in November 2024.

OPEC+ Meeting Raises Uncertainty

The upcoming debt deadline coincides closely with the upcoming meeting of OPEC+. Crude oil traders were unsure whether the group would decide to increase production cuts, especially as the market is currently weighed down by falling prices.

Saudi Arabia’s Energy Minister, Abdulaziz bin Salman, issued a warning last week to those who were betting on oil prices dropping, possibly indicating that OPEC+ might reduce output. However, statements from Russian oil officials, including Deputy Prime Minister Alexander Novak, suggest that the world’s third-largest oil producer is leaning towards maintaining the current output levels.

Meanwhile, Saudi Aramco is considering further reducing the official selling prices for all crude grades to Asia in July by $1 per barrel. This would put prices at the lowest level since November 2021, according to a Reuters poll. This also adds to the mixed signals in the market regarding output expectations.

In April, OPEC+ members announced additional oil production cuts of approximately 1.2 million barrels per day (bpd). This brought the total volume of cuts implemented by OPEC+ to 3.66 million bpd, as calculated by Reuters.

Near-Term Forecast

WTI crude oil prices are likely to remain under pressure in the near term. This will be mostly due to concerns over reduced demand from China and the negative impact of weak economic data. Despite positive developments on the US debt ceiling bill, the market is still influenced by China’s economic data, resulting in further losses. The upcoming meeting of OPEC+ and the debt deadline add uncertainty, with traders unsure if production cuts will be increased. Mixed signals from Saudi Arabia and Russia regarding output levels contribute to the overall market confusion. Additionally, the potential further reduction in Saudi Aramco’s official selling prices to Asia could add to the downward pressure on prices.

Technical Analysis

WTI Oil crossed to the weakside of $72.57 (S1) on Tuesday, putting it in a bearish position. The strong downside momentum created by this move puts the market in a position to challenge $68.49 (S2).

Look for a technical bounce on the first test of this level. However if it fails, then brace yourself for another potential acceleration to the downside with $63.04 (R3) the next target.

Recovering $72.57 (S1) will signal the return of buyers. If this generates enough upside momentum then look for a possible surge into $78.02 (PIVOT).

Resistance & Support Levels

For a look at all of today’s economic events, check out our economic calendar.