Oil Price Forecast: Sluggish Chinese Demand, Global Uncertainty Weigh

Highlights

• Sluggish Chinese demand and global uncertainty impact oil prices.
• China’s slow economic recovery limits upside potential for oil prices.
• Lingering caution and macroeconomic factors cap oil price gains.

Overview

US benchmark West Texas Intermediate crude oil prices slipped in Asian trading on Thursday as fears of a sluggish demand recovery in China outweighed the positive impact of Saudi Arabia’s supply curb announcement and the prospect of tighter supply from top exporters, Saudi Arabia and Russia. Despite the bigger-than-expected drop in U.S. crude stocks by about 4.4 million barrels, rising gasoline and distillate inventories added to the market’s cautious sentiment.

China’s services activity expanded at its slowest pace in five months in June, according to a private-sector survey, signaling weakening demand and dampening post-pandemic recovery momentum. This uncertainty over China’s economic growth and fuel demand recovery is expected to limit the upside potential for oil prices, keeping WTI within a range of $65 to $75 a barrel in the near term.

Although there have been calls for supply cuts in recent months, oil prices have remained range-bound, primarily due to lingering caution surrounding the demand outlook. This cautious sentiment, coupled with global macroeconomic headwinds and central banks’ interest rate hikes, continues to cap the upside potential for oil prices.

Looking ahead, a move above the key level of $80.00 may be necessary to instill more confidence among bullish traders. However, demand concerns persist as China’s slow economic recovery after lifting pandemic restrictions adds to the existing challenges posed by global macroeconomic factors.

In summary, despite Saudi Arabia’s supply curb announcement and the drop in U.S. crude stocks providing initial support, concerns over China’s demand recovery and broader macroeconomic uncertainties have put downward pressure on oil prices. The market remains cautious, awaiting further data releases and clear indications for a sustained bullish trend.

Technical Analysis

WTI crude oil is showing a slightly bearish sentiment as the current price of 71.75 is slightly lower than the previous 4-hour close. However, the market remains supported by the 200-4H moving average of 70.78, indicating a bullish signal. The 50-4H moving average at 69.98 further strengthens the bullish sentiment. The 14-4H RSI of 61.57 suggests positive momentum.

With the market trading well-above support at 67.37 to 68.31, and within striking distance of the resistance at 72.75 to 73.55, futher upside is anticipated.