Oil Prices Dip Amid Ceasefire Prospects and China’s Economic Woes

Oil prices edged lower on Tuesday as Israel’s acceptance of a proposal to resolve disputes blocking a ceasefire deal in Gaza eased supply concerns. At the same time, economic weakness in China further weighed on the demand outlook.

Geopolitical Developments Easing Supply Concerns

The recent dip in oil prices can be attributed to Israel’s acceptance of a “bridging proposal” presented by the United States to resolve disputes that were preventing a ceasefire deal in Gaza.

U.S. Secretary of State Antony Blinken confirmed that Israeli Prime Minister Benjamin Netanyahu had agreed to the proposal, which is expected to reduce the risk of oil supply disruptions caused by the ongoing conflict.

#Oil prices dropped by over 2.5% on expectations that successful Gaza ceasefire talks might ease supply concerns and fears that a weakening Chinese economy could impact demand.#Forbes

For more details: 🔗 https://t.co/PU2C9a2LmB pic.twitter.com/MUPRpy8u6h

— Forbes Middle East (@Forbes_MENA_) August 19, 2024

Market strategist Yeap Jun Rong noted that the likelihood of a ceasefire is now higher, leading to a decrease in the geopolitical risk premium that had previously been factored into oil prices.

UBS analyst Giovanni Staunovo highlighted that thin liquidity in the oil market and Blinken’s comments contributed to the unwinding of hedge positions that had been taken in anticipation of further price spikes.

China’s Economic Struggles Add to Demand Concerns

On the demand side, concerns about China’s economic health have put additional pressure on oil prices.

The world’s second-largest economy showed signs of weakening in July, with new home prices falling at their fastest rate in nine years.

#WTI #CrudeOil
WTI slips amid hopes for a ceasefire in #Gaza and concerns over #China’s economic outlook. Prices hit a near two-week low, but #Fed #ratecut bets could cushion further losses as the USD struggles for direction.

— Forex Gold Trader (@fxgoldanalysis) August 20, 2024

Industrial output slowed, and both export and investment growth dipped. Rising unemployment further dampened economic prospects, leading to fears that oil demand could weaken significantly if China’s economic slowdown persists.

Supply-Side Developments

On the supply side, production at Libya’s Sharara oilfield has increased to around 85,000 barrels per day, aimed at supporting the Zawia oil refinery.

Excited to dive into this whitepaper! Supply side dynamics and constraints in air, sea and road freight markets are crucial to understand, especially with the recent volatility and capacity issues. Looking forward to hearing about the future outlook developments!

— ClaireFanFun (@clairefanfun1) August 18, 2024

Libya’s National Oil Corporation (NOC) had previously declared force majeure on exports from the field after a blockade by protesters, which had severely impacted production.

In the U.S., crude stockpiles are expected to have fallen by 2.9 million barrels last week, according to a preliminary Reuters poll. Despite this potential decline in inventories, the overall sentiment in the oil market remains bearish.

Technical Analysis and Market Outlook

USOIL is currently trading at $75.33, showing a slight decline of 0.02%. The technical chart analysis indicates a bearish outlook, especially after breaching an upward trendline.

A bearish crossover has formed, with the 50-day Exponential Moving Average (EMA) at $77.00 crossing below the 200-day EMA at $77.96, typically signalling continued downward momentum.

Immediate support levels are found at $74.53, with additional support at $73.35 and $71.68. On the upside, resistance is expected around the pivot point at $75.80, with further resistance at $76.91, $78.75, and $80.18.

Given the current setup, the market outlook remains bearish as long as USOIL stays below $75.80. However, a break above this pivot point could shift momentum and present potential buying opportunities.

Conclusion: The market remains bearish below $75.80, but if oil prices break above this level, we could see a shift towards a bullish trend.