Oil prices drop, Brent & WTI at lowest since July 6.
Saudi Arabia reduces Arab Light crude price in Asia.
China’s economic outlook downgrade affects demand.
U.S. crude, fuel inventories rise, pressuring prices.
Short-term forecast: bearish trend for oil prices.
Oil Market Dynamics
Oil prices have continued their downward trend on Wednesday, after Brent and West Texas Intermediate (WTI) benchmarks closed at their lowest level since July 6 in the previous session. This marks the first time since May that oil prices have fallen for four consecutive days. The decline was influenced by a stronger U.S. dollar, concerns about demand, and doubts over the effectiveness of OPEC+ cuts.
OPEC+ Cuts and Supply Outlook
In response to the market situation, OPEC+, which includes the Organization of the Petroleum Exporting Countries and allies like Russia, agreed to voluntary output cuts of approximately 2.2 million barrels per day (bpd) for the first quarter of 2024.
Notably, about 1.3 million bpd of these cuts were an extension of existing voluntary curbs by Saudi Arabia and Russia. However, the voluntary nature of these cuts has left the market skeptical about their actual implementation.
Global and U.S. Supply Trends
On the global stage, Saudi Arabia has reduced the price of its Arab Light crude to Asian customers for the first time in seven months. In contrast, Libya’s National Oil Corporation is aiming to increase its oil output to 2 million bpd in the next three to five years. In the U.S., crude oil and fuel inventories rose in the week to Dec. 1, further exerting downward pressure on prices.
Demand Concerns and Bearish Outlook
The market is also facing headwinds from demand concerns, especially from China, the world’s largest oil importer. The recent downgrade of China’s outlook by Moody’s, along with the ongoing discussions at the COP28 climate conference about phasing out fossil fuels, are contributing to a bearish outlook. With the U.S. dollar strengthening and an anticipated decrease in interest rates, oil demand may be further impacted.
Given these factors, the short-term forecast for oil prices appears bearish. The market remains cautious, with the potential for prices to fall below the $70 per barrel mark.
While there is some speculation about the impact of geopolitical tensions, such as the Israel-Hamas conflict, on oil supplies, the overall trend suggests a continued decrease in oil prices, influenced by rising inventories, weakening demand, and market skepticism over OPEC+ cuts.
Daily Light Crude Oil Futures
With the current daily price of light crude oil futures at 72.31, marginally below the previous close of 72.32, the market is positioned near a pivotal point. This price sits just beneath the minor support/resistance level at 72.48, indicating a potential for fluctuation around this pivot.
The asset’s price is below both the 200-day moving average of 78.00 and the 50-day moving average of 81.42, suggesting a bearish sentiment in the longer term. However, the proximity to the minor support-resistance level could signal potential for short-term volatility.
Overall, the market sentiment leans towards bearish, particularly given its position relative to the key moving averages, but with an awareness of possible short-term fluctuations around the pivot at 72.48
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.