Oil Prices Drop 3% Amid China Demand Concerns and Rising Dollar

Oil prices declined by nearly 3% this week, driven by concerns about slowing demand growth, particularly in China, the world’s largest crude importer.

A report from Sinopec, China’s state-owned refiner, projected that the country’s crude imports could peak by 2025, with overall oil consumption expected to reach its zenith by 2027 as gasoline and diesel demand weaken.

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These forecasts come amidst a broader consolidation phase in global oil benchmarks, according to Emril Jamil, senior research specialist at LSEG. He noted that OPEC+ will need strict supply discipline to counterbalance the market’s jittery outlook. Notably, OPEC+ has reduced its global oil demand growth forecast for 2024 for the fifth consecutive month, underscoring the ongoing uncertainty.

Strong Dollar Adds Pressure on Oil Prices

Adding to the downward pressure, the U.S. dollar climbed to a two-year high after the Federal Reserve signaled a cautious approach to rate cuts in 2025. A stronger dollar typically makes oil more expensive for non-dollar holders, thereby reducing demand.

J.P. Morgan forecasts a 1.2 million barrels per day (bpd) surplus in the global oil market for 2025, driven by an anticipated 1.8 million bpd increase in non-OPEC+ production, while OPEC output is expected to remain steady. This surplus further dampens sentiment for crude markets as supply overshadows demand growth projections.

Geopolitical Moves and Potential Supply Adjustments

In a bid to tighten oil supply, G7 countries are considering stricter enforcement of the Russian oil price cap, Bloomberg reported. Proposals include lowering the current $60 per barrel threshold or imposing outright bans. Russia has largely circumvented the cap using its “shadow fleet” of ships, which has now come under additional sanctions by the EU and Britain.

Despite these measures, OPEC+ faces significant challenges in sustaining higher prices. The group’s supply adjustments may need to be more aggressive to counteract weakening demand trends and oversupply concerns, particularly as global economic growth projections soften.

WTI Crude Oil – Daily Technical Outlook: December 20, 2024

WTI crude oil is trading at $68.92, showing minimal movement with a gain of 0.04% on the day. The price is consolidating just below the pivot point at $69.67, following a bearish breakout from the symmetrical triangle pattern. The immediate resistance lies at $69.88, and a breakout above this could test the next resistance at $70.55. Conversely, immediate support is observed at $68.28, with further downside targets at $67.69 and $67.05.

WTI crude oil Price Chart - Source: Tradingview
WTI crude oil Price Chart – Source: Tradingview

Technical indicators suggest bearish momentum persists in the short term. The RSI at 37.98 indicates oversold conditions, signaling a potential reversal if buyers step in. However, the price remains below the 50 EMA at $69.25, confirming the bearish trend.

To regain upward momentum, WTI crude must decisively break above the pivot point and close above $70.55. Otherwise, continued downward pressure could lead to further declines toward $67.05.

Key Insights:

  • Oil prices dropped 3% this week as China’s demand outlook signaled long-term declines.

  • A strong U.S. dollar and cautious Fed policy weighed on global oil benchmarks.

  • J.P. Morgan predicts a 1.2 million bpd surplus in 2025, driven by non-OPEC+ production growth.

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ABOUT THE AUTHOR See More
Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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