Crude Reality: Oil’s Downward Spiral Amid China’s Slowdown and Global Shifts

Crude Oil is in a downtrend amid China’s slowdown, geopolitical uncertainties, and persisting tensions in the Middle East and Ukraine. China’s oil imports have decreased, leading to concerns that the country’s oil demand may have peaked due to increased adoption of electric vehicles and a deceleration in the manufacturing sector. This uncertainty is seen as a key factor affecting global oil markets and could have significant implications for future supply and prices.

Thursday 15:30 (GMT+3) – USA: GDP q/q (USD)

Thursday 15:30 (GMT+3) – USA: Unemployment Claims (USD)

Friday 02:50 am (GMT+3) – Japan: Retail Sales m/m (JPY)

Friday 04:30 am (GMT+3) – Australia: Retail Sales m/m (AUD)

Friday 09:45 am (GMT+3) – France: GDP q/q (EUR)

Friday 15:30 (GMT+3) – Canada: GDP m/m (CAD)

Friday 16:30 (GMT+3) – USA: Core PCE Price Index m/m (USD)

Saturday 04:00 am (GMT+3): China: Manufacturing PMI (CNY)

Crude Oil has been following a downward trend since July 5, when it peaked at $84.27 per barrel, and the price formed a Japanese candlestick bearish reversal pattern known as a Shooting Star. This was followed by a chart pattern known in technical analysis as a failure swing. Specifically, the peak at 83.12 failed to surpass the previous peak, and subsequently, prices dropped below the trough at 80.49, hence a failure swing. The exchange rate fell below the 20 and 50-period Exponential Moving Averages (EMA), creating a series of lower lows, paving the way for a further decline. On July 25, the short EMA (20-period) crossed below the long EMA (50-period), forming a strong reversal signal known in technical analysis as a “Death Cross,” which intensified the downward momentum, bringing the Crude Oil price down to $71.58 per barrel. Despite multiple attempts to rebound and form an upward correction, the prices remained below the downtrend line. Moreover, both the Momentum oscillator and the Relative Strength Index suggest a bearish outlook, registering values below the 100 and the 50 baselines, respectively.

Should the buyers take market control, traders may direct their attention toward the four potential resistance levels below:

76.46: The first price target is determined at 76.46, representing the 38.2% Fibonacci Retracement between the peak at 84.27 and the trough at 71.58. The resistance also coincides with the downtrend line.

77.78: The second target is set at 77.78, corresponding to the swing high marked on August 26.

79.44: The third price target is established at 79.44, which reflects the 61.8% Fibonacci Retracement drawn from the swing high of 84.27 down to the swing low of 71.58.

81.46: An additional resistance is seen at 81.46, aligning with the weekly resistance (R3) calculated using the standard Pivot Points method.

Should the sellers keep market control, traders may consider the four potential support levels listed below:

72.54: The primary downside target is observed at 72.54, corresponding to the weekly support (S1) calculated using the standard Pivot Points method.

71.58: The second support level is identified at 71.58, representing the swing low marked on August 5.

69.28: The third support line is established at 69.28, corresponding to a weekly low.

67.97: An additional downward target is recognized at 67.97, corresponding to the 161.8% Fibonacci Extension drawn from the swing low of 71.58 to the swing high of 77.78.

U.S. crude oil stockpiles decreased by 846,000 barrels to 425.2 million barrels in the week ending August 23, 2024, as refineries increased their capacity use to 93.3%. This was the eighth decline in nine weeks but smaller than expected. Crude oil production estimates were reduced, and imports and exports both fell. Gasoline stockpiles dropped by 2.2 million barrels, while distillate fuel inventories rose slightly but remained 10% below the five-year average.

In light of increasing global uncertainties and changing economic conditions, the downward trend in crude oil prices indicates more fundamental shifts. With a decline in China’s demand due to its economic adjustments and the increasing popularity of alternative energy sources, the global oil market may be at a critical juncture where new realities are replacing traditional dynamics. Both technical indicators and fundamental data support the view that the market is in a downtrend.