US Crude Oil Price Forecast: Bearish

• Question marks over Chinese demand continue to cloud the outlook

• Technically, a modest fallback seems most likely

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The Crude oil market’s backstory has something to justify both the optimist and the pessimist at present, which may explain why it’s ending the current trading week more or less where it started. While the markets’ big fundamental arguments aren’t likely to be won in the coming days, the technical picture suggests that the market may be headed lower, if not hugely so.

And what of that fundamental argument? Well, bulls can point to the latest authoritative monthly forecast from the Organization of Petroleum Exporting Countries. Released on August 10, It looked for a rise in demand of 2.25 million Barrels Per Day in 2024, after a 2.44 million rise this year. Both forecasts were unchanged for the month.

Coupled with the ongoing effects of production cuts already announced by major oil producers and clear signs that inflation’s grip on the United States is loosening, prompting market hopes that interest rates could stay on hold there for the rest of this year, and it’s perhaps unsurprising that oil prices should be headed higher.

OPEC member states participating in a deal with Russia have reduced oil production by 912,00 BPD, largely thanks to voluntary reductions by major swing producer Saudi Arabia.

However, the glass-half-empty crowd has a one-word response to all this: ‘China.’

As the world’s biggest energy importer, China’s demand levels are crucial for the oil market, and they don’t look pretty. July trade numbers were awful, with both imports and exports on the ropes and posting double-digit annualized falls. The country’s crude oil imports meanwhile retreated sharply from June’s near-record peaks to post their weakest rise since the start of the year.

Moreover, Chinese consumer prices are now in deflationary territory, while factory gate prices have extended their declines. If demand continues to weaken Beijing may have little choice but to step in with stimulus measures, but how successful they’ll be is anyone’s guess at this point.

Fundamentally the coming week looks set to remain a battle between these two opposing theses in the oil market. It’s a data-rich week, with US retail sales and the minutes of the last US Federal Reserve rate-setting meeting on tap, along with Japanese and Eurozone growth data, all of which have the potential to move the oil market. Closer to home the US Energy Information Administration will release its weekly oil and oil product inventory figures.

US Crude Oil Technical Analysis

Daily US WTI Chart Created Using TradingView

You can see the daily and weekly changes in retail oil trader’s positioning in the guide below:

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West Texas Intermediate benchmark prices are testing the top of a broad trading band established between the low of December 9 at $70.30 and the peak of April 12 at $83.50.

The market has tended to fight back into that range whenever it has abandoned it to the downside, as it has done five times since March. But information as to what might happen on a topside break is harder to come by, as the top has been unthreatened since that April peak. For now, there seems a marked reluctance to press matters beyond $83.50, with this week’s modest breaks higher soon sold down.

Above that point, November 7’s top of $93.38 might beckon, but recapturing that looks like a big ask in the dog days of the Northern Hemisphere summer when the market is typically rather range-bound anyway.

Below the $83.50 mark the market seems likely to trade lower, if not necessarily much lower, with support coming in between $80 and $81.

With this week unlikely to provide a conclusive fundamental change, either to the more energy-bullish story outside China or the bearish story within it, it seems likely that the dominance of the current range will endure, leading to moderately lower prices near term as the range top sees another rejection.

IG’s own sentiment data would appear to back this prognosis up, with traders now slightly bearish on WTI’s prospects, but not dramatically so.

–By David Cottle For DailyFX

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