Crude Oil Holds Near $70 as Fed Cuts Rates by 50 bps; Weak China Demand Weighs

Oil prices remained relatively flat on Thursday, as lingering concerns over demand offset the potential benefits of a larger-than-expected interest rate cut by the U.S. Federal Reserve.

The Fed reduced rates by 50 basis points on Wednesday, a move typically expected to spur economic activity and increase energy demand. However, market reactions were muted as the rate cut was seen as a response to a weakening U.S. labor market, signaling potential economic slowdowns ahead.

ANZ analysts commented, “While the 50 basis point cut hints at harsh economic headwinds ahead, bearish investors were left unsatisfied after the Fed raised the medium-term outlook for rates.”

Oil prices dropped on Thursday following a larger-than-anticipated interest rate cut by the Federal Reserve, raising concerns about the U.S. economy. Read more: https://t.co/Omhm3sOP0P#Oil #Oilprices #FederalReserve pic.twitter.com/LkJtK389Y6

— Economy Middle East (@Economy_ME) September 19, 2024

Weak Demand from China Weighs on Oil Market

China’s economic slowdown continues to be a significant drag on global oil prices. Data from China’s statistics bureau indicated that refinery output had slowed for the fifth consecutive month in August. Additionally, China’s industrial output growth dropped to a five-month low, further complicating the demand outlook for crude oil. Retail sales and new home prices in China have also weakened, reflecting a broader cooling of the world’s second-largest economy.

This decline in demand from China, a key global importer of oil, adds further downward pressure on oil prices, despite the potentially stimulative effect of the U.S. rate cut. Oil market participants are cautious, as Chinese demand plays a crucial role in sustaining global energy prices.

Citi analysts expect a temporary oil market deficit of around 0.4 million barrels per day, which may support Brent crude prices in the $70 to $75 per barrel range over the next quarter. However, they predict that this will be short-lived, with prices potentially falling back to $60 per barrel by 2025 as global balances deteriorate.

Geopolitical Tensions Add Uncertainty

In addition to economic concerns, geopolitical tensions in the Middle East are contributing to oil market volatility. On Wednesday, explosions involving walkie-talkies used by Hezbollah in Lebanon raised alarms across the region. Security sources attributed the incidents to Israel’s Mossad, although Israeli officials have not confirmed the attacks. These developments add further uncertainty to the oil market, where geopolitical risks often play a role in price fluctuations.

While such tensions may offer some short-term support for oil prices as investors turn to safer assets, they are unlikely to offset the broader macroeconomic factors, such as weak demand from China and concerns about a slowing global economy.

#OOTT #WTI
"While the 50 basis point cut hints at harsh #economic headwinds ahead, bearish investors were left unsatisfied after the #Fed raised the medium-term outlook for rates," ANZ analysts said in a note. https://t.co/2SIyTKbtTu

— WTI Trading Group- 🇺🇸 US Crude Oil Trader🛢️🌎 (@DB_WTI) September 19, 2024

Technical Outlook: USOIL Remains Bullish

Despite these headwinds, U.S. crude oil (USOIL) is holding firm above its pivot point at $69.31, currently trading at $69.95, up 1.30%. The 50-day Exponential Moving Average (EMA) at $69.43 is providing robust support, and as long as USOIL stays above this level, the outlook remains bullish.

Immediate resistance lies at $70.61, with additional targets at $71.84 and $72.89 if momentum continues to build. On the downside, key support levels are at $68.50, $67.55, and $66.39. A sustained break below $69.31 could signal a shift towards bearish sentiment, potentially leading to a sharp sell-off.

Key Insights:

• USOIL remains bullish above the $69.31 pivot point, with resistance at $70.61.
• The 50-day EMA at $69.43 serves as critical support for short-term momentum.
• A break below $69.31 could lead to a sharp sell-off, reversing the current trend.

In summary, while oil prices are currently supported by technical factors and short-term geopolitical risks, the broader economic outlook remains clouded by weak demand from China and concerns over global growth. Traders should closely monitor upcoming economic data and geopolitical developments for further price direction.