Oil Prices Forecast: Worries Over Chinese Demand Capping Gains

Highlights

• U.S. interest rate concerns drive recent dip in oil prices amid storm threats.
• Chinese economy faces property slump, reducing oil demand and affecting global prices.
• U.S. reports on consumption and nonfarm payrolls set to sway oil market direction.

Interest Rate Hikes Weigh on Oil Prices

Worries regarding possible U.S. interest rate hikes and their potential impact on demand overshadowed concerns about a tropical storm affecting the U.S. Gulf Coast supply, leading to a dip in oil prices this Tuesday. Key economic data from the U.S., set to be unveiled later this week, will shed light on the future trajectory of interest rates. Jerome Powell, Federal Reserve Chair, hinted at the possibility of additional rate hikes to tackle persistent inflation.

Federal Reserve’s Stance

Markets currently perceive an 80% likelihood of the Federal Reserve maintaining the status quo next month, as indicated by Refinitiv’s FedWatch tool. However, the probability of an interest rate hike come November stands at an approximate 56%. With looming interest rate peaks, the strong bullish trend for oil prices observed in July might be challenging to sustain. Both the U.S. and European economies are anticipated to encounter downward pressures in the upcoming fourth quarter.

China’s Economic Struggles

Demand concerns, a significant factor affecting oil prices, are also emanating from China. The Chinese economy hasn’t shown marked improvement, facing challenges like a deepening property market slump, dwindling consumer spending, and plummeting credit growth. These economic struggles led Beijing to reduce crucial policy rates, aiming to bolster activities in the world’s second-largest economy and significant oil consumer.

External Factors: Storms and Production Cuts

External factors are also in play. Tropical Storm Idalia, nearing hurricane strength, is projected to impact crude production on the U.S. Gulf Coast’s eastern side, following its lash on western Cuba. On the flip side, since the commencement of the third quarter, Brent and WTI prices surged by roughly 12% and 13% respectively, attributable to OPEC+’s production cuts.

Short-term Forecast

The coming days will focus on U.S. economic reports, particularly the personal consumption expenditures price index and the August nonfarm payrolls data. Given the confluence of these factors, the short-term outlook for oil prices remains volatile and potentially bearish, pending improvements in Chinese economic data and clarity on U.S. interest rate decisions.

Technical Analysis

The Crude Oil price has seen a marginal increase, moving from 79.98 to the current 80.14. This price movement places the commodity above the 200-4H moving average of 79.69, indicating potential bullish momentum. Furthermore, the price is slightly above the 50-4H moving average of 79.82, reinforcing this bullish stance. The 14-4H RSI stands at 53.50, suggesting slightly stronger momentum, as it’s just above the neutral 50 mark.

In terms of support and resistance, the commodity remains cushioned above the main support area of 79.05 to 78.29 and below the main resistance area of 81.43 to 81.75. Given these indicators, the current sentiment for Crude Oil in this timeframe appears moderately bullish.