An End To a Four-Week Losing Streak for Oil?

Crude Oil Prices Recap: Key Drivers of Last Week's Market Movements

This week, crude oil prices experienced notable volatility, with a mix of supply-side disruptions and ongoing demand concerns shaping the market. While temporary supply constraints provided some upward pressure, weak global demand, particularly from China, weighed heavily on price momentum.

Hurricane Francine's Impact on U.S. Oil Supply

Hurricane Francine was a significant catalyst driving oil prices higher midweek. The storm, which hit the U.S. Gulf of Mexico, led to the shutdown of approximately 730,000 barrels per day (bpd) of oil production. This represented around 42% of the region's total output, with additional disruptions in natural gas production also reported. Key U.S. oil firms, including Chevron and ExxonMobil, were forced to halt operations and assess potential damage to offshore platforms and refineries??. As a result, crude oil futures rose by more than 2%, with prices briefly climbing above $68 per barrel?.

Despite the supply concerns caused by Francine, the storm was downgraded to a tropical depression, and much of the Gulf of Mexico's production is expected to come back online relatively quickly. Traders have already begun to shift focus away from the storm, looking instead at the broader demand outlook??.

U.S. Inventory Draws Support Price Increases

Adding to the supply-side pressure was a substantial drawdown in U.S. crude inventories. The American Petroleum Institute (API) reported a larger-than-expected decline of 2.79 million barrels last week, far exceeding the anticipated build of 700,000 barrels. Gasoline inventories also saw a decline, further supporting the bullish price trend?. This inventory data, combined with the hurricane-induced production losses, prompted traders to cover short positions, adding more fuel to the price recovery?.

OPEC Demand Forecasts and Market Sentiment

While supply-side disruptions offered short-term support for oil prices, global demand concerns, particularly from China, kept the market from rallying further. OPEC revised its global demand growth forecast downward for both 2024 and 2025, citing weaker-than-expected demand from China. The cartel now expects demand to increase by 2.03 million bpd in 2024, down from previous estimates??.

China's crude imports rebounded in August, reaching their highest level in a year, but this was largely driven by refiners taking advantage of lower prices rather than a recovery in consumption. The demand outlook for China remains weak, with imports for the first eight months of 2024 still 3.1% below last year's levels. This continued fragility in demand, coupled with a slowing global economy, has tempered any optimism in the market?.

Saudi Arabia's Role and Ongoing OPEC+ Supply Cuts

Saudi Arabia, the largest producer within OPEC, continued to play a pivotal role in market trends. The kingdom increased its crude shipments to China, offering lower prices to Asian refiners to spur demand?. However, despite this effort, Saudi oil exports have been down overall in 2023, highlighting the persistent challenges faced by OPEC+ in maintaining market balance amid weak demand?.

OPEC+, which has been implementing production cuts since 2022, delayed a planned output increase of 180,000 bpd until December in response to the recent price weakness?. However, these efforts may not be enough to offset the broader demand weakness and oversupply concerns, particularly as traders remain skeptical of OPEC’s ability to maintain compliance with production cuts at lower price levels?.

U.S. Economic Data Adds to Demand Concerns

The broader U.S. economy also added to bearish sentiment. Last week, U.S. gasoline demand hit its lowest level since May, according to the Energy Information Administration (EIA), and distillate consumption followed suit?. Despite higher crude imports, the overall demand for refined products remains weak, contributing to rising inventories and dampening market sentiment?. Economic data from both the U.S. and Europe has suggested that global growth may slow in the coming months, further limiting crude oil demand.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is down. It turned down the week-ending September 6 when $69.50 failed as support. The trend will change to up on a move through $81.94. As of Thursday’s close, the market is trading higher for the week, putting it in a position to form a potentially bullish closing price reversal bottom and bring an end to the four-week losing streak.

The long-term range is $89.44 to $63.21. The market is currently trading on the bearish side of its 50% level at $76.32.

The intermediate-term range is $63.21 to $83.66. Its retracement zone at $71.02 to $73.43 is resistance.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week-ending September 20 is likely to be determined by trader reaction to $67.67.

Bullish Scenario

A sustained move over $67.67 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see a surge into the 61.8% level at $71.02, followed by the 50% level at $73.43.

Bearish Scenario

If bearish traders vigorously defend $71.02 then this will be a sign that we are in “sell the rally” mode. If $67.67 fails then look for the selling to possibly extend into $65.27 to $63.21. Whether the market accelerates to the downside, or stair-steps lower, will be determined by selling volume and volatility.

Market Forecast: Bearish in the Near Term

Looking ahead, the crude oil market faces a challenging landscape. While short-term supply constraints from Hurricane Francine and U.S. inventory draws may offer limited support, weak demand remains the dominant force. China’s fragile recovery, coupled with a slowing global economy, is likely to cap any sustained price rally. Resistance is expected between $71.02 and $73.43, with sellers likely to re-emerge at these levels??. OPEC’s downward demand revisions and the continued threat of oversupply suggest that prices may struggle to break out of their current range. In the coming week, traders should anticipate a bearish outlook, with prices potentially revisiting the support zone around $65.27 to $63.21 per barrel.