U.S. West Texas Intermediate crude oil futures are trading lower on Friday, with prices headed for their biggest weekly decline since June, amid weak demand and ample fuel supplies.
After hovering near five-month highs throughout August on the hope of a robust recovery in the economy, prices began to collapse at mid-week following a report that the volume of crude arriving in China was set to slow in September and after U.S. government data showed a steep drop in gasoline demand.
End of China’s Crude Oil Buying Splurge May Dent Demand Optimism
Refinitiv said August-loading barrels destined for China were 7.93 million bpd, down from 8.2 million bpd in July and well down from the second quarter average of 11.87 million bpd.
What the new data seems to be showing is that the crude oil that has been flooding into China in recent months will probably ease back to more normal levels from October onwards.
While this still means imports of likely above 10 million bpd, it does mean the crude market is going to lose as much as 2 million bpd of demand that it had been getting used to.
Why is this going to happen? Because earlier in the year when oil prices were falling to 22-year lows, Chinese refiners took advantage of their financial muscle to suck up available barrels across the globe. Now that its economy is sputtering like the rest of world, China isn’t interested in aggressively buying crude since it has ample supply.
Oil Prices…
U.S. West Texas Intermediate crude oil futures are trading lower on Friday, with prices headed for their biggest weekly decline since June, amid weak demand and ample fuel supplies.
After hovering near five-month highs throughout August on the hope of a robust recovery in the economy, prices began to collapse at mid-week following a report that the volume of crude arriving in China was set to slow in September and after U.S. government data showed a steep drop in gasoline demand.
End of China’s Crude Oil Buying Splurge May Dent Demand Optimism
Refinitiv said August-loading barrels destined for China were 7.93 million bpd, down from 8.2 million bpd in July and well down from the second quarter average of 11.87 million bpd.
What the new data seems to be showing is that the crude oil that has been flooding into China in recent months will probably ease back to more normal levels from October onwards.
While this still means imports of likely above 10 million bpd, it does mean the crude market is going to lose as much as 2 million bpd of demand that it had been getting used to.
Why is this going to happen? Because earlier in the year when oil prices were falling to 22-year lows, Chinese refiners took advantage of their financial muscle to suck up available barrels across the globe. Now that its economy is sputtering like the rest of world, China isn’t interested in aggressively buying crude since it has ample supply.
Oil Prices Pressured as US Data Feeds Fuel Demand Worry
Oil prices took a hit on Thursday and is vulnerable to further downside next week after a weekly government report highlighted weak U.S. gasoline demand data.
On Wednesday, the U.S. Energy Information Administration (EIA) data showed domestic gasoline demand during the week-ending August 28 fell to 8.78 million barrels per day (bpd) from 9.16 million bpd a week earlier. Consumption of other products also fell.
Weekly Technical Analysis
Weekly October WTI Crude Oil
Trend Indicator Analysis
The main trend is up according to the weekly swing chart. A trade through $43.78 will signal a resumption of the uptrend. The main trend will change to down on a move through the main bottom at $23.26. This is highly unlikely but there is room to the downside for a normal 50% to 61.8% correction.
The main range is $60.75 to $23.26. Its 50% to 61.80% retracement zone at $42.01 to $46.43 is the major resistance.
The minor trend is also up. A trade through $39.00 will change the minor trend to down. This will also shift momentum to the downside.
The short-term range is $23.26 to $43.78. If the minor trend changes to down then look for a possible break into its retracement zone at $33.52 to $31.10 over the near-term. This will probably attract buyers since it is a value area.
Weekly Technical Forecast
Based on this week’s price action, the direction of the September WTI crude oil market is likely to be determined by trader reaction to the 50% level at $42.01.
Bearish Scenario
A sustained move under $42.01 will signal the presence of sellers. The first downside target is a minor bottom at $39.00. Taking out this level could trigger a further decline into $33.52 over the near-term.
Bullish Scenario
A sustained move over $42.01 will indicate the presence of buyers. This could lead to a quick test of the minor high at $43.78. Taking out this level could trigger an acceleration to the upside since the weekly chart indicates there is no resistance until $46.43.
Weekly Outlook
The bearish news is beginning to pile up with low U.S. fuel demand the main catalyst behind the weakness. The news that China would limit demand crude oil purchases came as a surprise as well as reports saying that Middle East distillates at Asia’s oil hub in Singapore have soared above a nine-year high.
Looking ahead, rising coronavirus cases worldwide and renewed lockdowns would further dash hopes of a major drawdown in oil stocks for some time. At this time, the pressure remains on refiners to keep operating rates low.
The drop in prices probably means U.S. producers will curtail their plans to ramp up production as they discover that they have control over supply, but can’t really do anything about the weak demand.
Furthermore, any hope that a weaker U.S. Dollar would help ramp up foreign demand has been diminished with the greenback starting to rise from more than two-year lows. Although there are some who say it really doesn’t matter where the dollar is priced since there is plenty of supply available.
Essentially, as long as October WTI crude oil remains under $42.01, our bias will be to the downside with a minimum objective of $39.00 over the short-run.
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