WTI crude oil price continued its downward trend that started on July 5th and settled at $78.57, its lowest point since June 17th.
- WTI crude oil dropped for the second straight week as concerns about demand returned.
- It started the week at $82.45, retreated to $80.20 on July 16th, bounced back to $82.90 on Wednesday, and then crashed to $78.58 on Friday.
- This retreat happened after the weak Chinese GDP and industrial production data and after the US released its weekly inventory numbers.
Brent and WTI crude prices have been in a narrow range this year with attempts to recover finding strong resistance. On the weekly chart below, we see that the price has found resistance at the falling trendline that connects the highest swings since July 2022. All attempts to break that level – as happened in September last year and April – have proven to be false breakouts.
The same has happened in the lower side as WTI has failed to establish a clear downward trend. It has constantly failed to break below the ascending trendline that connects the lowest swings since May last year.
Consequently, oil has formed a symmetrical triangle pattern that is now nearing its confluence, meaning that a bullish or a bearish breakout in the coming weeks, a move that will depend on the next actions by OPEC+ members.
The key factor driving oil prices is on demand and supply. In the supply side, the US is still pumping substantial volumes of crude oil, with daily production averaging over 13.3 million barrels.
OPEC+ members have started to gradually increase production as they seek to restore the 2.2 million barrels a day that were halted from October last year. Therefore, traders are watching whether the cartel will decide to slow or maintain output at the current levels. The members are in a wait-and-see approach for now.
On the other hand, oil demand has been steady this year as the global economy recovers. However, the International Energy Agency (IEA) has started to see signs of supply weakness in certain regions. The Energy Information Administration (EIA) has also pointed to weak demand this year.
China, the biggest oil consumer, showed signs of softening as the economy expanded by 4.7% in Q2, missing the expected 5.1%. Industrial production has also dropped recently and investors are looking to India, which is doing well.
Oil also wavered after the last week’s inventory data. According to the EIA, US inventories dropped for the third straight week, the longest streak since August last year.
Crude oil has been in a downtrend after peaking at $84.50 earlier this month and this trend is gaining momentum as it dropped by 2.75% last week. It has also flipped the important support level at $80 into a resistance point.
Therefore, the price will likely continue falling as sellers target the next psychological point at $77.50. The alternative scenario is where the price bounces back as investors move to buy the dip. If this happens, oil could retest the resistance at $80.
The key data to watch this week will be the US oil inventories (expected drawdown is 700k), US GDP data, and the PCE inflation report on Friday.
Ready to trade our weekly forecast? Here are the best Oil trading brokers to choose from.
