Oil Price Forecast: Gains Limited by China’s Economic Woes ahead of CPI Report

Highlights

• U.S. crude inventories rise 5.9 million barrels.
• China’s economic data triggers market concerns.
• Resilient due to global supply constraints.

Overview

Oil prices slid on Thursday, taking a breather from multi-month highs reached the day before. West Texas Intermediate crude (WTI) edged down by a mere 0.1%, settling at $84.34. This comes after reaching its highest level since November of 2022.

The U.S. Energy Information Administration (EIA) dropped a bombshell, revealing a sharp uptick in U.S. crude inventories, which swelled by 5.9 million barrels over the past week to stand at 445.6 million barrels. This overshadows analysts’ modest expectations of a 0.6 million-barrel rise. Additionally, a record drop in U.S. crude oil exports of 2.9 million barrels per day last week further intensified concerns. Nevertheless, some traders are expecting a rebound in crude exports given the ongoing Brent and U.S. crude futures spread.

However, all eyes are now on China. As the world’s second-largest economy, its recent economic data is causing jitters in the market. Chinese consumer sectors are experiencing deflation, and there’s a continuous decline in factory-gate prices. Initially considered overly conservative, China’s 5% growth projection for 2023 now appears to be on the optimistic side, signaling challenges in their post-COVID economic recovery.

Bulls and Bears Weigh In

Market analysts are eagerly awaiting the U.S.’s Consumer Price Index (CPI) for July. The outcome of which is set to give an indication of the Federal Reserve’s future monetary stance. The consensus suggests a subtle year-over-year uptick, with monthly consumer prices predicted to rise by 0.2%, maintaining June’s momentum.

Meanwhile, potential strikes at gas facilities have spurred talks between giants Chevron and Woodside Energy Group. These facilities account for roughly 10% of the global LNG market, and concerns regarding their supply recently elevated European gas prices, bolstering the diesel demand outlook.

Despite China’s economic softness, oil prices stay resilient. Market forces are seemingly more tuned to supply constraints, particularly those stemming from Saudi Arabia’s extended production cuts and Russia’s commitment to curtail its September oil exports by 300,000 bpd. With geopolitics in the mix, notably tensions between Russia and Ukraine in the Black Sea, uncertainties around Russian oil shipments add another layer of complexity to the global oil forecast.

Technical Analysis

The current 4-hour price of Crude Oil stands at $84.36, marking a slight increase from the previous value of $84.20, suggesting a mild uptick in momentum.

Notably, the price lies significantly above the 200-4H moving average of $76.01, underscoring a prevailing bullish trend. Conversely, the price surpasses the 50-4H moving average of $81.85, indicating a potential continuation of this upward trajectory. With the 14-4H RSI at 65.98, momentum is strong, yet not reaching overbought levels.

Positioned above the main support area ($79.05 to $78.29) and a former resistance area ($83.63 to $81.73) but still below the main resistance range ($88.68 to $90.10), the Crude Oil market leans towards a bullish sentiment in the 4-hour timeframe.