Crude oil demand concerns in focus with key Chinese data on tap
Crude oil is now up for the third day after finding strong support around the $65 area. Now near $70, could it resume lower from here?
It is important that that blue shaded area around 68.80-69.00 now holds as support if prices dip, otherwise we may see the bears step in on oil again.
From a macro point of view, demand concerns continue to linger. Unless we see some improvement in data to suggest that crude oil demand is going to be stronger, or supply growth is going to be weaker, this recovery we have seen should be taken with a pinch of salt. It is likely that prices have found support this week amid short-side profit taking and on the back of weaker US dollar, with hurricane disruptions further encouraging dip-buyers. But weakness in China’s economy is a major concern, which puts the weekend’s release of industrial data from the world’s second largest economy into focus. In the week ahead, crude oil traders will be watching the big central bank rate decisions, especially that of the Fed on Wednesday. If the FOMC’s economic projections in the dot plots point to weakness in growth, then that could trigger a fresh wave of selling.
By Fawad Razaqzada, market analysts with FOREX.com
It is important that that blue shaded area around 68.80-69.00 now holds as support if prices dip, otherwise we may see the bears step in on oil again.
From a macro point of view, demand concerns continue to linger. Unless we see some improvement in data to suggest that crude oil demand is going to be stronger, or supply growth is going to be weaker, this recovery we have seen should be taken with a pinch of salt. It is likely that prices have found support this week amid short-side profit taking and on the back of weaker US dollar, with hurricane disruptions further encouraging dip-buyers. But weakness in China’s economy is a major concern, which puts the weekend’s release of industrial data from the world’s second largest economy into focus. In the week ahead, crude oil traders will be watching the big central bank rate decisions, especially that of the Fed on Wednesday. If the FOMC’s economic projections in the dot plots point to weakness in growth, then that could trigger a fresh wave of selling.
By Fawad Razaqzada, market analysts with FOREX.com
Note
Not much has changed since Friday's update.
Crude oil prices saw slight gains last week, ending a four-week losing streak for US oil, though Brent oil continued its decline. The price recovery was primarily driven by disruptions from hurricanes, but concerns about demand, particularly in China, remain.
The weekend data from China highlighted a slowing economy, with industrial production and fixed asset investment both falling short of expectations. China's oil demand also dropped, with refiners processing significantly less oil compared to previous months, marking a steep year-on-year decline.
Rising supply concerns add to the bearish outlook, with US oil rig counts increasing to their highest level since June, though this might not be sustainable if prices continue to slide.
Meanwhile, speculators have also become more bearish last week, selling off large amounts of Brent contracts.
The WTI chart continues to suggest a bearish trend for oil prices, with lower highs and lows forming, and moving averages indicating a downward direction. Investors are likely to continue shorting rallies until a trend reversal is evident, backed by data. Key resistance was being tested around $70 at the time of writing.
By Fawad Razaqzada, market analysts with FOREX.com
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