The price of crude oil (WTI) reduced its gains during Monday’s trading, currently trading at $70.78 per barrel. Crude oil prices had risen to $71.95 after last week’s data was released.
This reflects a clear level of flexibility in the U.S. economy, highlighted by strong employment data on Friday, portraying the labor market as one of the few positive aspects in the world’s largest fuel consumer.
I believe the recent decline in crude oil prices has led to increased demand from the United States. The U.S. has initiated the purchase of up to three million barrels of crude oil for the Strategic Petroleum Reserve (SPR), scheduled for delivery in March 2024. This move follows the SPR reaching its lowest levels in almost 40 years last year.
Despite the commitment of the Organization of the Petroleum Exporting Countries (OPEC+) to cut production by 2.2 million barrels per day in the first quarter of 2024, investors remain skeptical that this will lead to a significant decrease in supply. This raises expectations of production growth from non-OPEC countries and increases concerns about oversupply in the coming year.
Therefore, I believe concerns about contraction in China, the major oil importer, along with readings of the Consumer Price Index (CPI) and Producer Price Index (PPI) falling below expectations, will exert downward pressure on crude oil prices. Recent data revealed that China’s oil imports reached their lowest level in four months in November, reflecting rising inventories and declining fuel demand.
I now anticipate that crude oil traders will be extremely cautious in anticipation of the upcoming interest rate decision by the Federal Reserve. Expectations suggest that the Fed will keep interest rates steady at 5.5% in the next monetary policy statement next Wednesday.
At the same time, the market will also focus on the weekly crude oil inventory data from the American Petroleum Institute (API) for the week ending December 8, to be announced tomorrow, which will better determine market direction. This, in turn, is considered a modest support factor for crude oil prices.
However, I believe investors remain skeptical that recent production cuts announced by OPEC+ will be sufficient to offset the increase in supply from non-member countries and the decline in global demand.
Alongside weak economic data from China, the General Administration of Customs of China mentioned on Friday that crude oil imports had fallen by 10% since October, reaching their lowest level in four months in November.
In addition to the conflicting economic data chaos, all these conditions and factors raise concerns about fuel and oil product demand, thereby reducing the chances of any strong upward movement in crude oil prices in the medium and near term.
Technical analysis of the oil (WTI) prices
Crude oil prices are currently facing significant technical obstacles. When examining data and charts related to oil markets, traders are increasingly taking more short positions on oil prices after OPEC+ failed to implement strict measures that could support an increase in oil prices.
As long as OPEC+ cannot reach a unanimous opinion on production cuts, further downward pressure on crude oil prices is currently the only outcome, especially with the United States releasing millions of barrels from its reserves daily into an already weak oil market.
In the weakest scenario, the $80.00 level represents a resistance that should be closely monitored in case of a price increase. If crude oil manages to break above this level, the next target would be around $84.00 as a subsequent level where some resistance, selling pressures, or profit-taking may be observed.
If oil prices consolidate above this level, the next resistance is near $93.00, and the price may experience a downturn from that point.
As for the more likely scenario of a decline, the support near $74.00 has been breached, and the price is attempting to test the $70.00 level, even though it was already breached on Thursday and Wednesday. Therefore, it would be easier to target the $67.00 level, which aligns with the June triple bottom, serving as the next major support level where trading momentum is expected to gather.
Support Levels: $70.93 – $69.90 – $67.23
Resistance Levels: $72.07 – $72.14 – $73.60