Oil Prices Fall Further as Libya Dispute Nears Resolution and Demand Weakens

Oil prices continued their decline on Wednesday, extending a 4% drop from the previous day. The market is reacting to expectations that the political dispute halting Libyan oil exports may soon be resolved, potentially restoring supply. This comes amid growing concerns over weaker global demand, driven by economic slowdowns in the U.S. and China, the world’s two largest oil consumers.

Both Brent and West Texas Intermediate (WTI) crude fell to their lowest levels since December. Libya’s output has been cut by half due to internal conflicts, and major oil exports were halted earlier this week. However, signs of a deal between Libya’s rival factions to jointly appoint a central bank governor could ease tensions and allow exports to resume. “Selling continued in Asia amid expectations of a potential deal to resolve the dispute in Libya,” noted Toshitaka Tazawa, an analyst at Fujitomi Securities.

Weaker Economic Indicators from China and U.S. Pressure Prices

Oil prices also faced pressure from sluggish demand forecasts, particularly after weak economic data from both the U.S. and China. U.S. manufacturing activity remains subdued, according to the Institute for Supply Management, despite a slight improvement in August. The U.S. PMI showed contraction in new orders and production, adding to concerns about slowing economic growth.

China, the world’s largest importer of crude, is also experiencing weaker demand. Recent data revealed that China’s manufacturing activity fell to a six-month low in August, raising further concerns about global oil demand. Growth in new home prices has also slowed, reflecting broader economic weakness in the country.

“Easing political tension in Libya and economic weakness in the world’s largest oil consumers serve as a confluence of headwinds for oil prices,” said Yeap Jun Rong, a market strategist at IG.

Inventory Data Delayed Amid U.S. Holiday

The market awaits critical inventory data, delayed by the Labor Day holiday in the U.S. The American Petroleum Institute’s report will be released Wednesday evening, while the Energy Information Administration (EIA) data is expected Thursday. These reports could provide further clarity on the state of U.S. oil demand and inventory levels.

WTI Crude Oil Price Forecast 

Looking at WTI Crude Oil on the 4-hour chart, the price is currently hovering around $69.98, with immediate bearish momentum following a sharp decline from the $74.26 level. The price is well below the 50 EMA, which stands at $73.66, confirming a strong bearish trend. Fibonacci retracement levels provide potential zones of support, with the 0.618 level at $71.98 being a key resistance level. Below, the immediate support stands at $68.66, followed by stronger support at $67.69.

RSI on the 4-hour chart is at 25.65, deep in oversold territory. This could suggest a potential reversal or corrective bounce, but bearish momentum remains dominant for the time being. Immediate resistance lies near $70.79, and only a break above this level, followed by $71.45, would indicate a possible retracement toward higher levels.

In the current setup, the descending price action has triggered a sell-off that could continue, especially if the price fails to break the $70.79 mark. If this level is rejected, the price could test lower supports. The next downside target would likely be around the $68.66 area, with further selling pressure potentially driving prices towards $67.69. Given the oversold RSI, however, traders should remain cautious of potential short-term rallies.