Oil Prices Forecast: Lower as Investors Await Fed Decision, China PMI

Highlights

Oil prices took a step back on Monday, dipping over 1% as investors opted for caution, awaiting key economic indicators. Brent crude and U.S. West Texas Intermediate (WTI) crude futures slid to $89.37 and $84.20 a barrel, respectively. The market seemed to dismiss heightened tensions in the Middle East and instead focused on economic drivers.

Investors Look Beyond Geopolitical Hotspots

Although the conflict between Israel and Hamas escalated over the weekend, the impact on oil prices was subdued. The market had largely priced in the invasion, and the lack of spread into a broader regional conflict led to a pullback in oil prices. Both Brent and WTI had ended Friday 3% higher due to the tension but retreated when the conflict didn’t escalate as feared.

Upcoming Economic Indicators in Focus

Investors are keenly awaiting Wednesday’s Federal Reserve policy meeting, as well as upcoming U.S. jobs data and Apple Inc.’s earnings report. Despite geopolitical tensions, market participants are more concerned about signs of an economic slowdown affecting fuel demand. The Fed is expected to leave interest rates unchanged, while other key central banks are also set to review policies.

China’s Economic Health to Influence Prices

This week, China will release its manufacturing and services Purchasing Managers’ Index (PMI). Investors are looking for signs that the world’s top crude importer is stabilizing, and that fuel demand is picking up, following measures taken by Beijing to support its economy.

Short-term Outlook: Bearish

The decline in Brent and WTI last week, coupled with a situation in the Middle East that remains localized to Israel and Gaza, suggests that crude is overbought. In this context, the short-term outlook for oil appears bearish, and prices are likely to continue their slide.

The short-term outlook for crude oil could shift to bullish if there’s a sudden escalation in Middle East conflicts that disrupts supply, positive economic data from major economies that boosts demand, or a dovish shift in Federal Reserve policy that weakens the U.S. dollar. Additionally, unplanned supply disruptions or strong corporate earnings reports could also drive up oil prices by increasing market optimism and demand.

Technical Analysis

The current daily price of light crude oil futures is $84.31, which is below the 50-day moving average of $86.18 but above the 200-day moving average of $78.23. This indicates a mixed outlook: the asset is in a short-term bearish trend as it trades below the 50-day moving average, but maintains a long-term bullish trend by staying above the 200-day average.

Currently, the commodity is hovering just above its minor support level of $82.68, and well above the main support at $77.43. It is trading below both minor and major resistance levels at $88.21 and $92.49, respectively.

Given these factors, the market sentiment could be considered cautiously bearish in the near term, but with a potential for long-term bullishness.