Oil Traders Are Growing Cautiously Bullish

In a week of turbulent trade, U.S. benchmark September West Texas Intermediate (WTI) crude oil futures have managed to hold their ground, indicating a potential higher finish for the week. Thursday's session saw WTI crude oil prices settling slightly higher, thanks to lower U.S. crude inventories and strong crude imports by China. However, the market sentiment remained somewhat restrained due to concerns about weaker demand outlook.

Throughout the year, the U.S. oil demand has been bolstered by encouraging economic data, low unemployment, and subdued inflation. These positive factors were a result of the U.S. Federal Reserve's assertive rate-hiking campaigns, which are expected to culminate with a 25-basis point increase to the 5.25%-5.50% range next week. Nevertheless, apprehensions loom over the potential impact of the upcoming rate hike on crude oil demand.

On Wednesday, prices faced a dip as U.S. inventories fell less than anticipated, leaving some market participants disappointed. One contributing factor to the smaller draw was lower-than-expected gasoline demand for this time of year. At the same time, China's economic recovery, post the COVID-19 curbs, is not meeting expectations. Despite a surge in China's oil imports by almost half in June, stock levels have risen to near all-time highs, with China pragmatically purchasing discounted Russian crude.

Amidst these challenges, the market witnessed signs of increased buyer interest. Oil prices broke above their recent consolidation pattern, hinting at a potential decrease in selling pressure and exhaustion in bearish sentiment. Moreover, projections indicated a decline in U.S. shale oil production in August, the first monthly decrease since December 2022, suggesting a potential tightening of supply.

However, there are some concerns as the resumption of oil output at two out of three Libyan fields previously shut down due to protests could offset some of the supply tightening observed in other regions. Market participants are closely evaluating various factors impacting the market, including the balance between concerns over U.S. demand, China's economic growth, tighter Russian supply, and declining U.S. inventories.

While some positive drivers support oil prices, there are apprehensions about the cautious approach of global central banks, leading to a retreat in risk appetite. The likelihood of the U.S. Federal Reserve raising interest rates in July further adds to concerns about U.S. demand. Economists worry that inflation might not subside rapidly enough even with rate hikes, potentially limiting the potential gains in oil prices.

On a brighter note, China's commitment to stimulating economic growth through consumption-driven policies could enhance oil demand. Successful implementation of these measures might tighten oil balances, even if Europe experiences a mild recession.

Looking at the supply side, Russia is planning to reduce its oil exports in the third quarter, aligning with voluntary export cuts expected in August. Additionally, the strengthening U.S. dollar and lower-than-anticipated U.S. crude oil stocks exerted downward pressure on prices.

As we look ahead, market participants are closely monitoring China's efforts to stimulate economic growth, as it will have significant implications for oil demand. Traders and investors remain cautious and attentive to these factors, aiming to determine the short-term direction of the oil market.

In conclusion, the U.S. crude oil futures have navigated through a week of choppy trade, showcasing resilience despite mixed sentiments. The market remains on edge as global factors influence the demand and supply dynamics, and traders keep a watchful eye on key economic indicators to gauge the short-term outlook.

Weekly Technical Analysis

Weekly September WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. A move through $81.44 will change the main trend to up. A trade through $64.22 will reaffirm the downtrend.

Retracement Level Analysis

The contract range is $37.66 to $96.50. Its retracement zone at $67.08 to $60.14 is the major support. The price action over the past 18 weeks solidifies this area’s importance. Furthermore, the price action during that time period clearly indicates a tendency by investors to “buy the dip”.

The minor range is $81.44 to $64.22. Its retracement zone is $72.83 to $74.86. With the market trading on the strong side if this zone, traders should consider it new support.  

The intermediate range is $96.50 to $64.22. If the upside momentum continues then look for a surge into its retracement zone at $80.26 to $84.07.

Weekly Technical Forecast

The direction of the September WTI crude oil market the week-ending July 28 is likely to be determined by trader reaction to the minor Fibonacci level at $74.86 and the 50% level at $72.83.

Bullish Scenario

A sustained move over $74.86 will signal the presence of aggressive counter-trend buyers. This price is a potential trigger point for an acceleration to the upside with $80.26 the next major target price.

Bearish Scenario

A sustained move under $72.83 will signal the presence of sellers. If this fails then look for a possible acceleration into the 50% level at $67.08.

Short-Term Forecast: Cautiously Bullish

The short-term forecast for U.S. benchmark September West Texas Intermediate (WTI) crude oil futures is cautiously bullish. Despite facing turbulent trade, the prices have managed to hold their ground, indicating a potential higher finish for the week. The recent uptick in prices was supported by lower U.S. crude inventories and strong crude imports by China.

However, concerns about a weaker demand outlook are restraining market sentiment. While positive factors like encouraging economic data and low unemployment have boosted U.S. oil demand, apprehensions persist about the potential impact of the upcoming rate hike by the U.S. Federal Reserve. Market participants are closely evaluating various factors, including supply dynamics and global economic growth, to determine the short-term direction of the oil market.