Oil Price Forecast: Saudi Production Cuts vs. China’s Diminished Imports

Highlights

• Saudi, Russia bolster oil with production cuts.
• China’s oil imports drop 18.8% in July.
• OPEC+ eyes supply limits until 2024.

Mixed Performance in Crude Oil Prices

Crude oil prices began with a mixed performance this Tuesday, despite initially opening on a high. This fluctuation follows a potentially bearish close observed yesterday, linked to demand concerns stemming from the world’s largest economies, the US and China. The main driving force behind the rise in prices today, however, has been substantial production cuts by major players, Saudi Arabia and Russia.

Saudi Arabia and Russia’s Decisive Role in Market Support

The global oil stage witnessed Saudi Arabia, the top exporter, announcing its commitment to prolonging the voluntary oil output cut by one million barrels per day through September. The nation even hinted at either extending this cut post-September or making deeper reductions. Russia has followed suit, with plans to decrease oil exports by 300,000 barrels per day in September. With Saudi leading the OPEC and staying true to its commitment to output reduction, it’s evident that the Kingdom might be setting sights on a price higher than the current $80 per barrel.

OPEC+’s Ongoing Commitment to Limiting Supply

Adding fuel to the oil rally, OPEC+ continued its commitment from its last policy gathering in June, aiming to constrict supply till 2024. While they’ve retained the oil output reductions of 3.66 million barrels per day for 2023, the decision to extend and amplify these cuts from January 2024 by another 1.4 million barrels per day underscores their dedication to market stability.

China’s Oil Imports: A Bearish Perspective

In contrast, China, the world’s biggest oil importer, saw its crude oil imports plummet by 18.8% in July, the lowest since January. This significant dip is attributed to the combined reduced production targets and/or higher domestic demands from the major crude exporters, namely the U.S., Saudi Arabia, and Russia. Additionally, the rising stockpiles in China’s onshore crude oil inventories might further slow down the country’s purchases in upcoming months, even though domestic gasoline consumption had been anticipated to increase due to the summer travel season.

Short-Term Outlook: Bullish or Bearish?

While oil markets are witnessing bullish factors, like production cuts from Saudi and Russia, bearish aspects, such as China’s reduced imports, cannot be ignored. As a short-term forecast, the market remains poised on a tightrope with potential for both bullish and bearish turns, highly contingent on global production and demand fluctuations.

Technical Analysis

Crude Oil’s current 4-hour price stands at 82.03, showcasing a minimal ascent from the previous level of 81.95. This places it precariously close to the main resistance zone of 81.73-83.63, suggesting that it’s currently testing this critical barrier.

While the commodity’s price has risen above the 50-4H moving average of 81.06, indicating recent bullish momentum, a break below this moving average would be a notable sign of weakening in the market. Furthermore, the 14-4H RSI registers at 53.82, slightly above the neutral 50 threshold, hinting at mild bullish momentum.

However, given the proximity to the resistance zone and potential vulnerability surrounding the 50-4H moving average, traders should remain cautious. The market exhibits a tentative bullish sentiment but is on the verge of a possible shift.