Weak Demand Weighs on Oil

WTI Crude Oil (NYMEX: CL) is on track for a second consecutive week of declines, with prices hovering below $82 per barrel. The recent de-escalation of tensions in the Middle East, particularly the lack of a strong Israeli response to Iran’s attack, has eroded the geopolitical risk premium that had been supporting prices. This is further compounded by weaker global oil demand forecasts from JP Morgan, indicating a daily shortfall of 200,000 barrels per day compared to their initial projections.  

Additionally, surging US crude inventories, reaching a nine-month high of 460 million barrels according to the EIA, have added to the bearish sentiment. The Federal Reserve Chair’s hawkish comments regarding persistently high inflation and the unlikelihood of near-term interest rate cuts further dampen demand prospects as a stronger dollar becomes a more attractive investment. 

Technical Analysis 

The 4-hour technical picture for WTI Crude Oil aligns with the bearish fundamentals. The price action continues its downward trajectory, currently trading at $81.63/BLL after breaking below the crucial 50.00% Fibonacci retracement level. This signifies a firm bearish trend with all key moving averages, the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange), positioned decisively above the price. Notably, the 20-SMA has recently dipped below the 50-SMA and 100-SMA in a bearish crossover, indicating a potential acceleration of the decline. 

The RSI (Relative Strength Index) at 23.38 has dipped into oversold territory, suggesting that a short-term bounce could be imminent. However, any upward momentum is likely to face significant resistance at the 38.20% Fibonacci retracement level of $84.63/BLL. A sustained break above this level, backed by strong volume, would be needed to signal a potential trend reversal, with the 23.60% Fibonacci retracement level ($85.10/BLL) and the major resistance level at $87.67/BLL acting as levels of significance higher. 

Conversely, a further downside push with significant volume below the current price level could trigger a sell-off towards the 61.80% Fibonacci retracement level at $80.95/BLL. A decisive break below this level, coupled with high volume, could open the path for a steeper decline towards the 78.60% Fibonacci retracement level ($79.12/BLL) and the major support level at $76.79/BLL. 


The WTI Crude Oil outlook is turning increasingly bearish on the back of weak demand forecasts, rising US inventories, and a potential for a sustained de-escalation in the Middle East. The technical analysis reinforces this view, with a breakdown below the 50.00% Fibonacci retracement level and a bearish crossover of key moving averages. While oversold conditions on the RSI suggest a possible short-term correction, significant hurdles stand in the way of a sustained uptrend. 

Sources: TradingView, Trading Economics, Federal Reserve, EIA, Reuters. 

Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst 

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