Brent Crude – Oil Advances as OPEC Cuts Demand Forecast

• Oil prices continue to rise despite OPEC cutting demand forecasts for 2024 and 2025.
• OPEC is likely to extend production cuts as the October deadline approaches, with Saudi crude oil exports to China expected to drop in September.
• The rally is fueled by easing US recession fears, but upcoming US data releases could shift market sentiment.
• A host of resistance levels up ahead. will the rally have the legs to continue?

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Oil prices continued their upward trend at the start of the week, even as OPEC slashed its forecasts for 2024 and 2025. Last week, oil prices surged by 3% as fears of a US recession eased and supply concerns from the Middle East provided a safety net.

This morning, the rally showed no signs of slowing down, driven by last week’s reassuring US data that quelled recessionary worries. However, with a slew of key US data releases scheduled this week, market sentiment could shift once again, as each new piece of information influences perceptions of an impending recession.

In a surprising turn, OPEC announced this morning a reduction in its global demand forecast for 2024 and 2025. The primary reason cited was diminished expectations from China, whose recent data has been notably disappointing. This marks the first cut made by OPEC since its forecasts in July 2023. Chinese data has recently highlighted declining diesel consumption and ongoing challenges in the property sector.

The adjusted numbers by OPEC saw demand for 2024 cut to 2.11 mln bpd (Previous forecast: 2.25 million bpd). The 2025 demand forecast was cut to 1.78 million bpd (prev. forecast 1.85 million bpd).

Full OPEC REPORT

Adding to the complexity, sources in a Reuters report indicated that Saudi crude oil exports to China are expected to drop in September from 46 million barrels to about 43 million barrels, possibly contributing to OPEC’s revised forecasts.

During last week’s OPEC meeting, the organization hinted at the possibility of extending the current production cuts, rather than lifting them as initially anticipated in October. Today’s announcement makes it increasingly likely that these cuts will indeed be extended as the October deadline approaches.

Investor positioning has also seen a notable shift. Last week, investors reduced their petroleum positions to the lowest levels in at least a decade. This move comes as market participants weigh the increasing risk of a global economic slowdown. Fund managers have been net sellers for the past five weeks, reducing their combined positions by a total of 372 million barrels since the beginning of July.

Source: LSEG, JKEMP, CFTC

Massive Week of Data Ahead: Recession Fears to Return?

This week promises to be action-packed for the markets, with a slew of high-impact data releases from the US, UK, and Asia. 

All eyes will be on the US inflation print, but any hints of a looming recession could ignite volatility in oil prices. 

While oil inventory data will still be influential, it might take a backseat to the more significant economic indicators on the agenda.

Source: For all market-moving economic releases and events, see the MarketPulse Economic Calendar.  (click to enlarge)

The constant threat of an Iranian strike on Israel and the deployment of more US aircraft carriers to the Middle East should also be monitored. Any signs of increasing tension could work in favor of oil prices and keep the rally going. 

Technical Analysis Oil

From a technical standpoint, Brent is steadily climbing and nearing a crucial resistance level around the 81.50 mark. Interestingly, even with the recent upward movement, the daily time frame still suggests a bearish overall structure.

For the trend to flip to bullish on the daily chart, a daily candle close above the swing high at 82.60 is essential, offering potential short sellers a glimmer of hope.

If Brent surpasses the 81.50 mark, it will face further resistance around 82.70, where the 200-day moving average lies, with a key resistance level just above at 83.00. Conversely, if Brent gets rejected at the current 81.50 resistance level, the 80.00 mark will come into focus as the next support. Should this level be breached, support levels at 79.00 and 77.00 will be back in play.

Brent Oil Chart, August 12, 2024

Source: TradingView (click to enlarge)

Support

• 80.00
• 79.00
• 77.00

Resistance

• 82.70
• 84.68
• 86.21

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