By Crude oil prices ended the week in green; reversing some of the losses recorded over the previous two weeks. Notably, optimism that China’s oil demand is improving has contributed to this rebound. Escalation of the Russia-Ukraine war further bolstered Brent futures to a two-week high; ending the week at $75.05 per barrel.
In the new week, the US dollar and conflicts in Eastern Europe will remain on investors’ radar. In regards to the dollar, the FOMC meeting minutes are set for release on Tuesday. Besides, demand from the US Thanksgiving holiday may offer some additional support to crude oil price.
Chinese demand
The aggressive stimulus package announced by PBoC in late September boosted Brent futures to a one-and-a-half-month high of $81.15. However, disappointment from subsequent briefings on the extent of the government’s support has held the commodity in a prolonged consolidation pattern.
For Brent, the benchmark of global oil, the bulls have lacked enough momentum to break the resistance at the previously steady support zone of $76 per barrel. Similarly, for over five weeks, WTI oil has traded within a range of between $72.80 and $66.60.
Amid China’s struggling real estate sector and weak Chinese consumer sentiment, most economists expect crude oil outlook to remain bearish in the near term. In fact, about two weeks ago, OPEC lowered its forecast for China’s oil demand growth in 2024 from 580,000 bpd in its previous predictions to 450,000 bpd.
This was its fourth downward revision with a decline in the country’s oil imports contributing to the update. Besides, the organization further lowered its projections for China’s oil demand growth in 2025.
Fast forward to last week and signs of improvement from the world’s leading crude oil importer contributed to the recorded gains. Crude oil imports in the country appears on track to hit a three-month high at 11.4 million bpd. Notably, this figure would also mark the third top month in 2024.
Granted, seeing that it takes upto three months for bought cargoes to arrive in China, one may argue that the increase in arrivals matches the three-year low crude oil prices in early September. Even so, economists are optimistic of positive changes in China’s economy in the year’s fourth quarter, an aspect that would further boost crude oil prices.
In October, the country’s retail sales and exports rose while industrial output still recorded a slowdown. Besides, its GDP in the first three quarters stood at 4.8% YoY; slightly below the year’s target of 5.0%.
US Dollar index is rising
Escalation of the Russia-Ukraine war saw crude oil price rally to a two-week high in the past week. In response to Ukraine’s recent attack using US-made missiles, Russia attacked a Ukrainian military facility using newly developed hypersonic ballistic missile in addition to updating its nuclear doctrine.
According to the OPEC+ member, the moves are a message to the West that the country will response aggressively to US and UK’s “reckless” decisions in support of Ukraine. In response, the US government has imposed new sanctions on Russia’s Gazprombank.
Investors in the crude oil market are fearful that the attacks may affect oil facilities; a factor that has boosted crude oil prices. In the same breath, the geopolitical tensions have boosted the US dollar, curbing oil price gains. As with other dollar-priced assets, a stronger greenback makes the commodity more expensive for holders of foreign currencies.
Additionally, the FOMC meeting minutes are set for release on Tuesday. Recently, the Fed chair indicated that the US economy is performing “remarkably well”. Besides, economists are concerned that Trump’s trade policies will be inflationary. As such, most of them predict a slower rate reduction path in 2025 even as they bet on a rate cut of 25 basis points during its December meeting.
While the market await further cues on the Fed’s decision, investors are hesitant to short the greenback. With that, a stronger dollar will likely remain a headwind for crude oil price in the short to medium term.
Crude oil price analysis
Brent chart by TradingView
The daily chart shows that the Brent crude oil price has risen slightly in the past few weeks. It has risen from last week’s low of $70.75 to $75.
It has moved above the ascending trendline, which connects the lowest swing since September 10 of this year. Oil has formed a symmetrical triangle pattern.
Also, Brent has moved to the 23.6% Fibonacci Retracement point, and is below the 50-day and 100-day moving averages.
Therefore, there is a likelihood that the price of Brent will continue rising as bulls target the upper side of the triangle at $76. In the longer term, however, the price will resume the downward trend as sellers target the year-to-date low of $68.70.
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