Key points:
Oil prices began the week on a downward trajectory, continuing their losses from last week as market participants grappled with the dual impact of weak demand signals from major economies and the potential for increased supply from OPEC+.
Picture: WTI crude prices fell as weak demand signals from China and the U.S, as observed on the VT Markets app.
As usual, we look to the charts for guidance. The USOUSD-ECN chart shows the recent price action of WTI crude oil, with the price dropping sharply from around $77.24 to the current level of $73.70.
This decline reflects a broader market sentiment that has shifted towards caution, as traders and investors assess the impact of various global economic factors, including the possibility of an upcoming Federal Reserve rate cut and its potential effects on economic growth and energy demand.
The moving averages (EMA) show a bearish trend, with the shorter-term averages below the longer-term ones, reinforcing the negative sentiment. The MACD histogram is also negative, indicating that momentum is currently favouring further downside.
However, there is a slight uptick in the histogram bars, suggesting that the bearish momentum might be weakening slightly, or at least stabilising, around the current price levels.
This price movement comes in the context of broader market dynamics, where concerns about global economic slowdown, particularly in key regions like China and Europe, have led to reduced expectations for energy demand.
Such a bearish sentiment has been fueled by expectations that the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+, will proceed with a planned output hike in October. Eight OPEC+ members are scheduled to increase production by 180,000 barrels per day as part of a strategy to unwind some of the recent production cuts.
This anticipated increase in supply is occurring against a backdrop of weakening demand from the world’s two largest oil consumers: the United States and China. In the U.S., oil consumption data from the Energy Information Administration (EIA) showed that June’s demand was at its lowest seasonal level since the pandemic-induced downturn in 2020.
Meanwhile, in China, an official survey revealed that manufacturing activity hit a six-month low in August. This was compounded by disappointing factory gate prices and challenges in securing orders. Although a private survey hinted at a tentative recovery, the overall outlook for Chinese demand remains bleak.
For those trading oil CFDs, the combination of potential supply increases from OPEC+ and subdued demand in key markets like China and the U.S. suggests that oil prices may remain under pressure in the near term.
Traders should closely monitor upcoming economic data, particularly this week’s U.S. jobs report and any updates on China’s economic performance, as these will provide further insights into the demand outlook and the Fed’s policy decisions.
