Oil Prices Forecast: EIA Report, China’s Demand Impacts Global Trends

Highlights

• Brent and WTI attempting to recover from losses.
• EIA report: U.S. crude stockpiles drop, while gasoline, distillate inventories rise, hinting at increased output.
• Saudi and Russian leaders discuss stabilizing oil prices.
• China’s oil imports at four-month low, affecting global demand.
• Market in contango suggests less concern about oil supply.

Rebounding Oil Prices

International benchmark Brent and U.S. benchmark WTI crude oil futures are showing signs of recovery on Thursday, attempting to rebound from the week’s significant losses. At 06:20 GMT, February Brent futures traded at $74.55, up by 0.34%, while January WTI futures were at $69.62, marking a 0.35% increase. This recovery follows a dip to a six-month low in the previous session, indicating a volatile market.

Inventory Shifts and Production Changes

The latest EIA report highlights a notable decrease in U.S. crude oil stockpiles, marking the first production drop since July. Contrasting with the decline in crude inventories, which fell by 4.6 million barrels, gasoline and distillate inventories rose. This increase, particularly the 5.4 million barrel surge in gasoline stocks, suggests heightened refiner output.

OPEC+ and Global Supply Concerns

Oil prices have experienced a roughly 10% decline since OPEC+ announced voluntary output cuts of 2.2 million barrels per day. OPEC’s production in November also fell, driven by reduced shipments from Nigeria and Iraq, alongside sustained cuts by Saudi Arabia and others. High-level discussions between Russian and Saudi leaders further indicate ongoing efforts to stabilize oil prices.

China’s Influence on the Market

China’s market activities significantly impacted global oil dynamics. November saw China’s crude oil imports falling to a four-month low, driven by high inventory levels and weakening economic indicators. Moody’s recent downgrade warnings for several Chinese state-owned entities reflect broader economic concerns, influencing the global demand outlook.

Short-Term Market Outlook

Considering these factors, the short-term outlook for the oil market appears bearish. The contango market structure for Brent and WTI suggests less immediate concern about supply shortages. Additionally, the increase in U.S. gasoline inventories and China’s reduced oil import demand contribute to a cautious market sentiment, potentially leading to further price fluctuations.

Technical Analysis

The current daily price of light crude oil futures at $69.68 shows a slight increase from the previous close of $69.38, suggesting modest upward momentum. However, this price is below both the 200-day moving average (MA) of $77.96 and the 50-day MA of $80.88, indicating a bearish trend in the longer term.

The current price is positioned between the minor support level of $66.85 and the minor resistance level of $72.48.

Considering these factors, the current market sentiment leans towards bearish, but with a possibility of short-term bullish movements if the price breaches the minor resistance level of $72.48. However, the current downside momentum suggests the most likely near-term target is $66.85.