Bullish Momentum Builds As Oil Markets Tighten

September West Texas Intermediate (WTI) crude oil settled higher on Thursday, boosted by strength in Brent crude, which surpassed $84 a barrel for the first time since April. The surge was fueled by supply tightness resulting from production cuts by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, collectively known as OPEC+. These cuts, along with some involuntary outages, have supported the oil market, resulting in four consecutive weeks of gains.

Despite Wednesday's drop in oil prices, the overall outlook remains positive. The U.S. Federal Reserve's interest rate hike and lower-than-expected U.S. crude inventories were contributing factors to the temporary setback. However, market analysts still hold a favorable view on oil, expecting WTI crude to climb to a range of $82 to $88 in the coming months.

Risk appetite in the broader financial markets is on the rise as expectations grow that central banks, like the Federal Reserve, are approaching the end of their policy tightening campaigns. This development bodes well for global growth and energy demand, further bolstering the outlook for oil prices.

The U.S. economy also provided support to the market, with government data revealing a stronger-than-expected 2.4% growth in the last quarter. This growth was driven by a resilient labor market, which boosted consumer spending, and increased business investments in equipment, reducing the risk of a recession.

Investors are finding oil and other risk assets increasingly attractive, as interest rate hikes are either at their peak or nearing it. This, combined with a growing belief that a recession can be averted, adds to the appeal of the oil market.

Adding to the positive sentiment, China's commitment to boost policy support for its economy has raised hopes for increased oil demand from the world's largest crude importer. Market participants are now looking forward to the OPEC+ ministers' meeting on August 4, where they will review the current market conditions and discuss future strategies.

China's Policy Boost Impacts Crude

China's move to step up policy support for the economy is likely to have significant implications for crude oil prices. As the world's second-largest economy, China's economic growth and demand for oil play a crucial role in shaping global oil markets.

The commitment to boost domestic demand and stimulate economic growth indicates that China aims to revitalize various industries, including transportation and manufacturing, which are heavily reliant on oil. Increased economic activity within the country could lead to higher energy consumption, thus potentially driving up crude oil demand.

Moreover, as China focuses on promoting tourism and improving the development environment for private firms, there could be a rise in travel-related activities and industrial output, both of which require energy resources like crude oil. This could further bolster oil demand within the country.

On the other hand, while the policy support measures are aimed at boosting the economy, concerns about growing debt risks may limit the scale and aggressiveness of the stimulus. If policymakers exercise caution in their approach, it could moderate the impact on crude oil prices.

Additionally, China's efforts to stabilize trade and foreign investment may also influence global oil demand. As the country is a significant importer of crude oil, any shifts in its trade dynamics could affect international oil prices.

Overall, the precise impact of China's policy support on crude oil prices will depend on the specific measures implemented, the pace of economic recovery, and how effectively they translate into increased energy demand. The oil market will closely monitor China's economic developments and policy decisions to assess their effects on global oil prices.

OPEC+ Cuts Spur Crude Price Gains

Saudi Arabia and OPEC+'s decision to cut production has had a significant impact on crude oil prices. At the June meeting, Saudi Arabia announced a deep cut in its output for July, reducing it to 9 million barrels per day (bpd) from around 10 million bpd in May, the largest reduction in years. This move comes as part of a broader OPEC+ deal to limit supply until the end of 2024, aiming to boost oil prices.

The announcement of production cuts has historically caused price fluctuations, and the market has responded accordingly. In the past, surprise decisions to cut supply have led to a temporary spike in oil prices. By extending the existing cuts and reducing overall production targets further, OPEC+ aims to stabilize prices and counter speculation.

Saudi Arabia's ability to quickly adjust its output due to sufficient spare capacity and storage makes it a crucial player in influencing oil prices. As OPEC+ pumps around 40% of the world's crude, their policy decisions hold significant sway over the oil market. Nonetheless, the impact of these production cuts will also be influenced by other factors, such as global economic conditions and demand trends although the current trend is bullish.

Weekly Technical Analysis

Weekly September WTI Crude Oil

Trend Indicator Analysis             

The main trend is down according to the weekly swing chart. A move through $81.44 will change the main trend to up. A trade through $64.22 will reaffirm the downtrend.

Retracement Level Analysis

The contract range is $37.66 to $96.50. Its retracement zone at $67.08 to $60.14 is the major support. The price action over the past 19 weeks solidifies this area’s importance. Furthermore, the price action during that time period clearly indicates a tendency by investors to “buy the dip” into the retracement zone.  

The minor range is $81.44 to $64.22. Its retracement zone is $72.83 to $74.86. With the market trading on the strong side of this zone, traders should consider it new support.  

The intermediate range is $96.50 to $64.22. If the upside momentum continues then look for a surge into its retracement zone at $80.26 to $84.07. The first level was briefly tested this week. Trader reaction to this zone could determine the direction of the market for the next several months.

Weekly Technical Forecast

The direction of the September WTI crude oil market the week-ending August 4 is likely to be determined by trader reaction to the intermediate 50% level at $80.26.

Bullish Scenario

A sustained move over $80.26 will signal the presence of aggressive counter-trend buyers. This price is a potential trigger point for an acceleration to the upside with the first target the main top at $81.44. Taking out this price will change the main trend to up and could spur another surge through a pair of main tops at $81.77 and $83.49, followed by the intermediate Fibonacci level at $84.07.

Bearish Scenario

A sustained move under $80.26 will indicate the presence of sellers. If this creates enough downside momentum then look for the selling to possibly extend into the minor retracement zone at $74.86 to $72.83.

Short-Term Forecast:

We’re bullish on crude oil prices over the short-run due to supply tightness from OPEC+ production cuts and growing risk appetite in the financial markets. Expect WTI crude to climb to a range of $82 to $88 in the coming months, supported by positive economic indicators and increased oil demand from China.