Oil Prices Dip Amid OPEC+ Output Hike and Sluggish Demand in China, U.S.

Oil prices extended their losses on Monday as expectations of increased OPEC+ production, starting in October, combined with signs of sluggish demand in China and the U.S., contributed to concerns about future consumption growth.

The Organization of the Petroleum Exporting Countries (OPEC) and their allies, collectively known as OPEC+, are set to increase output by 180,000 barrels per day (bpd) in October.

This move comes as part of a broader strategy to gradually unwind the recent 2.2 million bpd production cuts while maintaining some reductions until the end of 2025.

Oil prices extended losses on Monday on expectations for higher OPEC+ production starting in October and as signs of sluggish demand in China and the US, the world’s two largest oil consumers, raised concerns about future consumption growth.https://t.co/UV6NOVNifx#Oilprices… pic.twitter.com/IO6RB9nUCT

— Business Recorder (@brecordernews) September 2, 2024

Market analysts, including IG’s Tony Sycamore, have noted the market’s apprehension over OPEC’s potential output increase.

Both Brent and WTI crude oil have recorded losses for two consecutive months, as demand concerns in the U.S. and China have overshadowed recent disruptions in Libyan oil supply caused by domestic conflicts.

Impact of China’s Economic Slowdown on Oil Prices

China’s slowing economy has further exacerbated the bearish sentiment surrounding oil prices. The official Purchasing Managers’ Index (PMI) for manufacturing in China fell to 49.1 in August, down from 49.5 in July, marking the lowest level in six months and signalling a contraction in manufacturing activity.

Factory gate prices also declined, and manufacturers reported challenges in securing new orders. While a private survey showed some signs of recovery in export-oriented companies, the overall outlook remains bleak.

China – Pretty Bad State – July 2024

Crude Oil – Big Declines
Prices – Deflation
Credit – Downtrend across pic.twitter.com/3Na9YN63Ac

— Sandeep (@_Sandeep09) September 1, 2024

Sycamore highlighted the market’s growing concern that China’s economy might miss its growth targets, which would further dampen global oil demand.

In the U.S., data from the Energy Information Administration revealed that oil consumption in June dropped to its lowest seasonal level since the 2020 pandemic, adding to the downward pressure on oil prices.

Technical Outlook for WTI Crude Oil Prices

WTI Crude Oil is currently trading at $73.10, reflecting a 0.72% decline as it remains under pressure. The asset is facing resistance just below the pivot point of $74.03, which serves as a critical threshold for potential price movements.

If WTI fails to break above this pivot point, it could continue to trend lower, with immediate support levels at $72.74, $71.51, and $70.39.Technical indicators also point towards a bearish outlook.

The Relative Strength Index (RSI) stands at 36, indicating that the asset is not yet oversold but is leaning towards continued downward momentum.

Moreover, WTI Crude Oil is trading below its 50-day Exponential Moving Average (EMA) of $74.86, further reinforcing the bearish sentiment. For traders, monitoring the $74.03 pivot point will be crucial.

A break above this level could shift the momentum and potentially drive prices toward resistance levels at $75.07, $76.23, and $77.57.

Conversely, sustained trading below the $74.00 mark may signal continued weakness, with the asset likely to target lower support levels.

Looking Ahead: Potential Risks and Market Sentiment

As the global oil market continues to grapple with weak demand from the world’s largest consumers, the prospect of increased OPEC+ production only adds to the uncertainty.

Analysts from ANZ have suggested that OPEC may have to reconsider the phase-out of its voluntary production cuts if the organization seeks to stabilize or increase oil prices.

We’re closely monitoring at multiple economic indicators

Like the yield curve and jobless claims to assess recession risks

While an economic downturn is not here yet

Risks of it are gradually increasing

For now, the market remains in a bullish structure pic.twitter.com/ki6f0c4Ph5

— Game of Trades (@GameofTrades_) September 1, 2024

With the number of operating U.S. oil rigs remaining unchanged at 483, as reported by Baker Hughes, the focus will likely shift towards how OPEC+ navigates the balancing act between maintaining production levels and supporting prices amidst weakening global demand.

As the market awaits key economic data and geopolitical developments, traders should remain vigilant, as these factors could significantly impact the direction of oil prices in the coming weeks.