Oil Prices Forecast: Seven-Week Rally Teeters Amid Global Financial Shifts

Highlights

• China’s slowdown impacts oil’s seven-week rally. 
• U.S. bullish data influences oil market sentiment.
• Tightening supply versus global demand tug-of-war.

Oil Prices Waver Amid Economic Uncertainties and Tightening Supply

Oil prices, having ridden a seven-week high, appear ready to relinquish their gains as China’s economic slowdown and potential U.S. interest rate hikes counterbalance tightening supply cues. This rally, the longest of the year for both Brent and WTI benchmarks, saw them surging by 18% and 20% respectively.

US Economic Indicators & Oil Prices

Recent U.S. data has been bullish for the economy but has indirectly impacted the oil market. The U.S. Federal Reserve’s commitment to curbing inflation has kept a check on escalating oil prices. Two key indicators – a decline in jobless claims and robust retail sales figures – imply that the Fed might sustain higher interest rates. This might seem positive, but higher borrowing costs could potentially slow economic growth, leading to decreased oil demand.

China’s Role in the Global Oil Landscape

China, being the world’s second-largest oil consumer, significantly influences oil market dynamics. Recent economic reports from the nation indicate a swift deceleration in economic momentum since Q2, especially with the ongoing property crisis unsettling global markets. Yet, in an unexpected move, China tapped into its crude oil reserves in July, marking the first such instance in nearly three years.

Supply & Demand Dynamics

Despite the above uncertainties, several factors are supporting oil prices. OPEC+ production cuts, burgeoning demand due to elevated U.S. travel and industrial activity, and the diminishing U.S. rig count signal a tightening supply. Concurrently, U.S. crude oil inventories dipped by almost 6 million barrels recently, hinting at strong exports and refining activities. This supply squeeze is evident as net-long positions, a bullish bet, touch yearly peaks.

Short-term Forecast

While concerns from the U.S. and China introduce bearish sentiments, the tightening supply primarily driven by OPEC+ interventions and growing U.S. demands suggests a bullish outlook for oil. In the coming days, analysts predict prices might edge upward, especially if the supply continues to constrict and global demand remains robust.

Technical Analysis

Crude oil, currently priced at $80.00 per 4-hour interval, has recently dipped slightly from its previous $80.04. Positioned between the 200-4H moving average of $78.24 and the 50-4H moving average of $81.96, the commodity hints at a consolidation phase. Its position above the 200-4H MA but below the 50-4H MA implies a tug-of-war between buyers and sellers. The 14-4H RSI stands at 41.37, indicating a somewhat weaker momentum, yet not in the oversold territory.

With main support areas ranging from $79.05 to $78.29 and resistance between $83.81 to $84.89, the oil market appears neutral, but with a slightly bearish tilt due to its proximity to the support zone.

The key area to focus on is the combination of the 200-4H moving average at $78.24 and the lowest support level at $78.29. This support cluster has to hold or prices could collapse over the near-term.