Crude oil prices remained subject to choppy trade in the new week as demand concerns continue to weigh on the commodity. Granted, the market is still finding support in the recently announced rate cut by the Federal Reserve. Besides, geopolitical tensions in the Middle East remain a tailwind for crude oil prices.
In the new week, the focus will remain on the health of the two leading economies – the US and China. Besides, heightened conflicts between Israel and Hezbollah may disrupt oil supplies and in turn enact upward pressure on the prices.
Chinese demand
Lower demand from the leading crude oil importer, China, has continued to curb the prices’ upward potential. The economic growth of the world’s second largest economy has slowed with data released last Friday indicating that its fiscal revenue of between January and August dropped by 2.6% YoY.
Granted, the figure was unchanged from the previous month’s reading. However, in August alone, the numbers dropped by 2.8% YoY. This was a further decline from the 1.9% drop in July. Besides, the country’s fiscal expenditure rose by 1.5% between January and August compared to the 2.5% growth for the period between January and July.
In mid September, Goldman Sachs cut its annual growth forecast for the Asian country from 4.9% to 4.7%. Amid the economic pressure, there are growing calls for increased stimulus.
In fact, the focus is on the press conference scheduled for Tuesday with investors keen on PBOC’s governor Pan Gongsheng remarks. This comes after the central bank’s decision to lower the 14-day reverse repurchase rate. Signs that the Chinese government will step up to boost its economy will be a bullish factor for crude oil prices.
Crude oil prices’ tailwinds
Despite the demand concerns, crude oil prices continue to find some support from the geopolitical tensions in the Middle East. On the one hand, oil prices have remained rather complacent even after conflicts between the Israeli military and Hezbollah escalate. This is based on the fact that oil supplies are yet to be disrupted. However, if Iran gets involved, the status quo will likely shift; pushing crude oil price higher.
Furthermore, AccuWeather meteorologists have warned that a major hurricane is approaching the Gulf of Mexico. Ahead of Hurricane Francine, Shell is preparing to pause production at two of its platforms in the region. The resultant decline in US weekly inventories may further boost oil prices.
What to expect in the new week
Apart from the PBOC press conference, investors will also be eyeing additional cues on the Federal Reserve’s actions. More specifically, the crude oil market is bound to react to the inflation readings due on Friday. The PCE price index, which is the Fed’s preferred gauge of inflation, will show the extent of price pressures.
These figures come at a time when the bank has begun pulling back on its restrictive monetary policy. Analysts expect the core PCE price index to have increased by 2.6% in August on a year-over-year basis. CB consumer confidence, durable goods orders, and the weekly crude oil inventory report are also due for release in the course of the week.
Additionally, investors will be keen on remarks by various Fed officials including the central bank’s chair. Jerome Powell is set to speak at the US Treasury Market Conference on Thursday with the public on the lookout for talks on how the central bank perceives the balance sheet reduction.
Brent crude oil forecast
The daily chart shows that the price of crude oil peaked at $92 earlier this year and then plunged to a low of $68.77 on September 10.
Along the way, the 50-day and 200-day moving averages crossed, forming a death cross chart pattern.
Brent crude has also moved below the important support level at $76.77, its lowest point on June 4th. However, Brent has rebounded to about $74 as some investors bought the dip.
The recent rebound seems like a dead cat bounce, a temporary comeback after an asset forms a strong rebound. In most periods, this rebound is usually short-lived.
Therefore, after the weak flash manufacturing and services PMI numbers from the US and Europe, there are signs that demand is relatively weak. As such, the price will likely resume the bearish trend as sellers target the next point at $68.77, which is about 7% from the current level.
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