Short Term Demand Boosts Oil Market

Weekly Recap of Crude Oil Market

The crude oil market experienced a volatile week, influenced by a mix of geopolitical events, economic indicators, and supply-demand factors. Despite some downward pressure, the overall trend remained bullish on the weekly chart.

Middle East Developments

The week began with oil prices retreating as potential ceasefire negotiations in Gaza eased Middle East tensions. This de-escalation lowered the geopolitical risk premium factored into oil prices, as the region's stability directly impacts global oil supply and transportation routes. However, significant gaps remained between the parties involved in negotiations, keeping some uncertainty in the market.

Hurricane Beryl Impact

Tropical Storm Beryl, which approached the U.S. Gulf Coast early in the week, initially caused concern for crude markets. Key Texas ports, including Corpus Christi, Houston, and Galveston, closed in preparation for the storm's landfall. However, the storm's impact was less severe than anticipated, with major refineries along the U.S. Gulf Coast reporting minimal disruptions. This easing of supply disruption concerns failed to support prices, contributing to downward pressure.

U.S. Inventory Data

Throughout the week, U.S. inventory data provided support for oil prices. The American Petroleum Institute (API) reported a 1.92 million barrel decrease in crude stockpiles, while the Energy Information Administration (EIA) showed an even larger drawdown of 3.4 million barrels, far exceeding expectations. Gasoline inventories also decreased significantly. These inventory reductions indicated strong summer fuel demand, helping to stabilize prices after recent declines.

Economic Indicators and Federal Reserve Outlook

The market closely watched U.S. economic data and Federal Reserve member commentary. The release of the Consumer Price Index (CPI) on Thursday showed inflation easing, with the 12-month rate at 3%, near the lowest level in more than three years. This bolstered hopes for potential interest rate cuts later in the year, which typically stimulate economic growth and could boost crude oil demand. However, Federal Reserve Chair Powell maintained a cautious stance, stating that policymakers require more evidence of slowing inflation before reducing borrowing costs.

Global Demand Forecasts

Conflicting demand outlooks from major energy agencies added uncertainty to the market. The International Energy Agency (IEA) cut its demand growth forecast, projecting global demand growth at a 12-month low of 710,000 barrels per day in Q2, primarily due to a contraction in Chinese consumption. The IEA cited factors such as lackluster economic expansion, improved energy efficiency, and increasing adoption of electric vehicles. In contrast, OPEC maintained a more optimistic outlook, keeping its demand growth forecasts unchanged. The organization expects global oil demand to increase by 2.25 million bpd in 2024, citing resilient economic growth and strong summer travel as key drivers for fuel consumption.

Chinese Economic Challenges

Data from China, the world's largest oil importer, revealed ongoing economic hurdles. Factory-gate prices continued to fall, indicating persistent deflationary pressures. This followed earlier signals of diminished crude appetite from some Chinese refiners, adding to concerns about global demand.

Market Performance

Despite these mixed signals, light crude oil futures showed resilience, edging higher in the latter part of the week after testing support levels. However, as of Thursday's close, Light Crude Oil futures were 0.65% lower for the week, reflecting the complex interplay of bullish and bearish factors.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is up. A trade through $86.24 will reaffirm the uptrend. The main trend will change to down on a move through $72.08.

The new minor range is $72.08 to $84.52 with a pivot at $79.16. The short-term range is $86.24 to $72.08 with a pivot at $79.16. The two pivots form a value zone, which is likely to attract buyers if traded.

The strongest retracement zone at $76.02 to $73.60 is solid support. It is essentially controlling the short-term direction of the market, offering hope for the bulls and a potential trigger point for a steep decline for the bears.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week-ending July 19 is likely to be determined by trader reaction to $83.16.  
Bullish Scenario

A sustained move over $83.16 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see a further acceleration to the upside with $86.24 the initial target price.

Bearish Scenario

A sustained move under $83.16 will indicate the presence of sellers. If it generates enough downside momentum then we could see a test of the value zone at $79.16 - $78.30. However, with the trend up, this would probably become another buying opportunity.

Short-Term Forecast:  Cautiously Bullish

The outlook for crude oil next week leans cautiously bullish, despite some potential headwinds. Continued drawdowns in U.S. crude and gasoline inventories suggest strong summer demand, which could provide support for prices. The easing of inflation and potential for interest rate cuts later in the year could stimulate economic activity and oil demand. However, traders should remain vigilant for any shifts in Federal Reserve rhetoric.

The conflicting forecasts from the IEA and OPEC create a complex demand picture. While OPEC's optimistic outlook provides some bullish sentiment, concerns about Chinese economic growth and global efficiency improvements may cap price gains. Although Middle East tensions have eased, the situation remains fluid. Any escalation could quickly reintroduce a risk premium into oil prices.

The overall trend remains up on the weekly chart, suggesting that while bearish events could drive prices lower in the short term, they may not necessarily change the broader up trend. Given these factors, crude oil prices may experience some volatility but are likely to find support. The market will be particularly sensitive to any new economic data, especially from China, and updates on global supply-demand balances.

While there's potential for short-term price dips, the underlying bullish trend and expectations of tightening supply due to OPEC+ production cuts could limit downside risks. Traders should closely monitor U.S. economic indicators, any developments in Middle East negotiations, and signals of Chinese demand recovery. The interplay between these factors will be crucial in determining price movements in the coming week, with the potential for upside surprises if economic data continues to show resilience or if geopolitical tensions unexpectedly increase.