Oil Prices Forecast: Lower for Second Week Amid Middle East, China Concerns

Highlights

• Oil prices stable but poised for a second week of losses.
• Concerns over Middle East supply and China’s demand impact prices.
• Brent and WTI futures show weekly declines, influenced by global uncertainties.

Overview

Oil prices remained relatively stable on Friday, but they are poised for a second consecutive week of losses. The key drivers behind these developments are concerns over supply disruptions in the Middle East, a significant oil-producing region, and uncertainties surrounding the demand outlook, particularly in China, the world’s largest crude importer.

Key Facts

Brent crude futures experienced a modest uptick of 29 cents, equivalent to 0.3%, reaching a price of $87.14 per barrel by 0658 GMT. At the same time, U.S. West Texas Intermediate crude futures saw gains of 36 cents, or 0.4%, settling at $82.82 per barrel.

Despite significant gains exceeding $2 per barrel on Thursday, Brent crude is currently on track to post weekly losses of approximately 4%, while West Texas Intermediate (WTI) is expected to conclude the week with a 3% decline compared to the previous week.

Oil prices have been influenced by the prevailing risk environment, with market participants cautiously optimistic that the U.S. Federal Reserve is nearing the conclusion of its interest rate hiking cycle. However, lingering reservations persist regarding the demand for oil, specifically in light of recent developments in China.

China’s PMI and Economic Concerns

In October, China’s manufacturing activity exhibited unexpected contraction, as the official purchasing managers’ index (PMI) dropped from 50.2 to 49.5, falling below the critical 50-point threshold that separates expansion from contraction. This decline underscores uncertainties surrounding demand revival in the country.

A private sector survey conducted on Friday revealed that China’s services sector experienced slightly faster growth in October. However, sales registered the softest rate in ten months, and employment stagnated, reflecting a decline in business confidence.

Short-term Forecast

In the immediate future, the oil market is expected to maintain a cautious stance, leaning more towards a bearish sentiment. This outlook is influenced by the easing of supply concerns in the Middle East and lingering uncertainties in China’s demand dynamics. With Brent crude potentially posting weekly losses of around 4% and WTI facing a 3% decline compared to the previous week, market participants should remain vigilant for potential fluctuations in the coming days.

Technical Analysis

Light crude oil futures edged marginally higher, trading at $82.69, just above the previous close of $82.46.

Currently, the price hovers above the minor resistance turned support at $82.68, suggesting a potential shift in sentiment.

The price remains nestled between the 200-day and 50-day moving averages, signaling a neutral zone but leans toward a bullish bias as it’s closer to the shorter-term 50-day MA at $86.32.

The proximity to minor resistance hints at a cautious optimism among traders.