Oil Prices Decline Due to High Inventories and China’s Economic Concerns

07/12/2023 By: Bonny Markets

Oil prices clawed back some of their losses in early Asian trade, but remained at their lowest level since June, after declining in the previous session on high crude oil production and gasoline inventories in the US.

Brent crude futures rose 32 cents or 0.43% to $74.62 a barrel at 0116 GMT. Meanwhile, the US West Texas Intermediate (WTI) crude oil futures contract rose 33 cents or 0.48% to $69.71 per barrel.

“It is possible the oil market has sold too low,” which could mean the recovery is a “short-term bounce,” said Tina Ting, market analyst at CMC Markets (LON:CMCX), in a note.

In the previous session, markets were “surprised” by data showing US production remained at record levels despite falling inventories, ANZ analysts said in a note.

Some of the negative sentiment was also caused by rising fuel inventories, ANZ analysts said.

Gasoline stocks rose by 5.4 million barrels on the week to 223.6 million barrels, as announced by the EIA on Wednesday, which far exceeded expectations for an increase of 1 million barrels.

Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman met to discuss further cooperation on oil prices on Wednesday, as members of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, may strengthen market confidence in impact of production cuts.

Oil prices fell by 2% last week, despite the announcement of voluntary production cuts by OPEC+, due to concerns over whether the output cuts would be fully implemented.

Concerns about China’s economy also contributed to Wednesday’s price drop, and markets will be paying attention to the release of Chinese trade data due later on Thursday.

China’s export data for October was worse than expected, with annual declines occurring every month since May.

USOIL – Technical Analysis

Oil prices continue to weaken, especially after breaking out support at 72 and have now formed a lower low in the 70 area. With a retracement that has the potential to end at the same key level; 72 at the same time at Fibonacci 61.8%, there is still potential that oil prices will weaken again to 68.75 which is the inverse Quasimodo H4 area as a demand area. Oil prices themselves will continue to be bearish as long as they do not create a new higher high above 74.

BONNY MARKETS ANALYSIS OPINION

The current decline in oil prices highlights the various factors impacting global energy markets. High US crude oil production and surging gasoline inventories have put pressure on oil prices, leaving them at their lowest levels in recent months. Although there was a slight recovery in the most recent trading session, this condition indicates significant uncertainty and volatility in the oil market. In addition, the meeting between Russian President Vladimir Putin and Saudi Arabia’s Crown Prince Mohammed bin Salman to discuss cooperation on oil prices signals serious attention to this issue from the leaders of the world’s main oil producers. However, concerns about China’s economic performance, reflected in its disappointing trade data, are also an important factor adding to uncertainty in the oil market. In this context, global energy markets are likely to remain sensitive to major economic developments as well as oil production and inventories, which will influence the direction of future oil price movements.

• OIL