International oil prices experienced a significant decline, with Brent crude futures falling by $1.52 to $71.04 per barrel, marking a 2.09% drop. U.S. WTI crude futures decreased by $1.68, closing at $67.02 per barrel, a 2.45% decline. Over the week, Brent and WTI fell 4% and 5% respectively, marking the largest weekly drop in nearly a month.
This decline is primarily attributed to increasing concerns over the global economic outlook, particularly with signs of weak demand emerging again. Strong U.S. economic data also adds to the uncertainty regarding the Federal Reserve's potential rate cut in December.
Demand Side Pressure: Demand growth is slowing in major economies. While there has been a slight recovery in retail and consumer data in developed economies, industrial production and energy demand have not followed suit. In the Asia-Pacific region, energy consumption remains below expected levels, highlighting growth challenges in multiple markets. Analysts suggest that small and medium-sized refineries' low operation willingness and industrial slowdown in some regions are putting immediate pressure on crude oil demand.
Supply Side Observations: Despite ongoing OPEC+ production cuts, market patience with their ability to balance supply and demand is waning. Traders note that while supply tightening can ease inventory increases, it faces a pessimistic market sentiment amid slowing demand growth.
Fed Policy Uncertainty: Positive U.S. economic data, including retail sales, boosts confidence in economic resilience. However, the probability of a December Fed rate cut has decreased from 70% to 60%. Uncertainty in rate policy is expected to continue influencing the oil market. Analysts point out that a slower pace of rate cuts may maintain a strong dollar, indirectly suppressing oil prices.
Technical Analysis: Brent crude hovers around the $70 per barrel mark, which offers short-term support. However, a drop below this could lead to further declines towards $68. WTI is also under pressure, with $67 showing strong bearish momentum, possibly targeting $65. Daily charts indicate that both Brent and WTI failed to break their 20-day moving averages, with MACD indicators signaling ongoing bearish sentiment. Traders should watch recent trading volume changes, as increased short positions could lead to deeper price adjustments.
Institutional Views: Analysts highlight the biggest market challenge as the lack of demand recovery highlights. While North American consumption is stable, industrial production has not fully recovered energy demand. Supply-wise, U.S. high production and strategic reserve replenishment constrain upward price momentum. The market is in a delicate phase, with supply-demand imbalances unresolved and geopolitical risk premiums diminishing, yet macroeconomic uncertainties heightening investor risk aversion.
Looking ahead, oil market sentiment is suppressed by several factors. Demand weakness needs time to improve, and supply-demand imbalance pressures limit OPEC+'s impact. Concurrently, the Federal Reserve's uncertain policy path intensifies concerns about the global economic outlook. If oil prices fail to find stable support soon, the market might enter a new range-bound phase. Traders should closely monitor the Federal Reserve's December meeting and the latest economic data.
Key Price Levels: Brent support: $70 per barrel; resistance: $74 per barrel. WTI support: $65 per barrel; resistance: $69 per barrel. Short-term traders should remain cautious as the market may continue testing key support levels in the coming weeks.
