Oil Prices Forecast: Near-Term Pressure Expected to Continue as U.S., China Demand Concerns Mount

Highlights

• Traders attempting rebound after market’s test mid-July lows
• Supply disruptions easing, while demand concerns grow
• China CPI and PPI fall, but remained inline with expectation

Overview

International benchmark Brent crude oil and U.S. benchmark Brent crude oil futures are inching higher on Thursday as traders shrugged off signs of deflation in China, while searching for additional information on demand from the two biggest consumers in the world.

At 08:06 GMT, January Brent Crude Oil futures are trading $80.17, up $0.63 or +0.79% and December WTI crude oil is at $75.88, up $0.55 or +0.73%.

The intraday rebound comes about as both benchmarks challenge mid-July lows as worries over possible supply disruptions in the Middle East eased and concerns over U.S. and Chinese demand rose to the forefront. Both of these macroeconomic factors as well as technical analysis indicators are giving the short-sellers a major advantage at this time.

Economic Front

China inflation data revealed on Thursday showed that October CPI fell 0.2% year on year, while PPI data fell 2.6% year on year. Both figures nearly matched pre-report expectations form a CPI decline of 0.1% and a PPI drop of 2.7%.

In the U.S. on Wednesday, data from the American Petroleum Institute (API) indicated weakening demand. U.S. crude oil inventories rose by 11.9 million barrels over the week to Nov. 3, sources said. If confirmed, this would be the biggest weekly build since February.

Meanwhile, the U.S. Energy Information Administration (EIA) data has been delayed until November 15 due to a system upgrade.

Short-Term Outlook

Both fundamental and technical factors are pointing toward a bearish market over the near-term.

Technical Analysis

Both the minor and main trends are down in light crude oil futures with the market trading on the bearish side of the 50-day moving average at $86.01 and the 200-day moving average at $78.17. This prices are likely to act as near-term resistance.

Looking at support and resistance levels, the market just breached support at $77.43, making it new resistance and setting it on course for a potential test of $72.48 over the near-term.

The price action suggests that the near-term direction will be determined by trader reaction to $77.43.