Oil Price Forecast: Pressured by Weak China GDP Growth, Libya Output Resumption

Highlights

• China’s GDP growth falls below expectations, raising concerns about the economy.
• Oil prices influenced by Libyan oilfield reopenings and potential Russian supply cuts.
• Firm greenback weighs on demand for dollar-denominated WTI crude oil. 

Overview

U.S. West Texas Intermediate crude oil prices are down for a second consecutive session on Monday as China’s economic data revealed a slowdown in growth during the second quarter. This development has raised concerns about the demand for oil in the world’s second-largest consumer, particularly as Libya resumed production over the weekend. Furthermore, a slight improvement in the greenback has also contributed to a decrease in demand for the dollar-denominated asset.

China’s GDP Growth Below Expectations

According to data released by the National Bureau of Statistics, China’s gross domestic product (GDP) grew by a modest 0.8% from the previous quarter. The country’s post-pandemic recovery has been faltering rapidly due to weakening demand both domestically and abroad. The GDP figure fell below expectations, which does little to alleviate concerns over the Chinese economy. However, Chinese refineries increased their daily processing of crude by 1.6% in June compared to May, aligning with the strong imports witnessed by the world’s leading crude importer last month.

Beijing to Exercise Caution on Stimulus

While apparent oil demand has shown robust year-on-year growth, the market appears to be more fixated on the headline GDP numbers. Beijing is expected to exercise caution in implementing any new stimulus measures, as they are wary of driving commodity prices higher. The Chinese government seems to be stockpiling crude at low prices while waiting for a potential recession to impact the West before fully deploying stimulus efforts.

Libyan Oilfieds Resume Operations

The decline in oil prices was partially influenced by the U.S. benchmark, which saw three consecutive weeks of gains, reaching its highest level since April. This increase was a result of oilfield shutdowns in Libya and Shell’s temporary halt in Nigerian crude exports, causing a tightening in supply. Over the weekend, two out of three Libyan oilfields that were previously closed, namely the Sharara and El Feel with a combined production capacity of 370,000 barrels per day, resumed operations. However, the 108 field remains shut due to protests related to the abduction of a former finance minister.

Lower Russian Exports Expected

In Russia, there are expectations of a decrease in oil exports from western ports next month by approximately 100,000-200,000 barrels per day compared to July. This development signals that Moscow is following through on its commitment to implement fresh supply cuts in coordination with Saudi Arabia, the leader of OPEC.

Short-Term Outlook:  Weaker

In summary, the decline in oil prices can be attributed to China’s slowed economic growth and the resumption of oil production in Libya. Additionally, factors such as a stronger dollar and the cautious approach of Beijing towards implementing stimulus measures have further impacted the oil market. Looking ahead, the situation in the West and Russia’s upcoming supply cuts will continue to influence oil prices in the short term.

Technical Analysis

WTI Crude Oil experienced a slight dip in price, standing at $74.62 compared to the previous 4-Hour close of $74.74. The market shows mixed signals, with the current price approaching the 50-4H moving average of $73.92, whole remaining well above the 200-4H moving average of $71.17. This suggests short-term weakness in the midst of a strong longer-term uptrend. The 14-4H RSI at 43.56 indicates a neutral-to-bearish sentiment.

With a main support area from $69.88 to $70.58 and a main resistance area from $76.92 to $77.99, the market lacks significant near-term support but may face limited resistance. Overall, the market sentiment for WTI Crude Oil is cautiously bearish.