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Oil Price Loses Momentum as Weak China Growth Dampens Mood

Michael Abadha Blockchain market writer
    Summary:
  • OPEC announced on Thursday plans to proceed with cuts this quarter, but even that wasn't enough to prop up oil prices amid economic jitters.

Oil continued signaled signs of instability on Thursday, with WTI crude gaining marginally to trade at $76.71 at 16:40 UTC, before going down to trade at $75.84 at 7pm UTC. The commodity faces headwinds brought by China’s economic slowdown, and its March futures contracts expired below the strike $81.71 yesterday. China’s economy is critical to oil prices, and a fourth straight month of contraction has dampened hopes of short-term gains.

Confrontations in the Middle East between the United States and Iran-backed Houthi rebels have not resulted in notable changes in crude oil prices. However, there has been significant rise in harsh rhetoric from both the US and Iran over the past week, and the market could react to such geopolitical pressures if such hostilities continue to escalate.

US crude inventories have stabilized in the last week following previous disruptions caused by winter storms. The latest reports indicate an increase to 779.3 million barrels, up from 777.19 million barrels  in the week ending January 26th, 2024.  With the Federal Open Market Committee deciding to retain US interest rates between 5.25%-5.5%, focus will now be turning to Friday’s Nonfarm payroll data.

China also remains in the radar, as the market awaits potential government action in the phase of reduced manufacturing and a contracting property market.

In the near term focus will be on OPEC’s implementation of agreed production cuts, but that will also be weighed against the demand dynamics around China’s economy. The oil cartel announced on Thursday that it will stick to an earlier decision to cut production by 2.2 million barrels per day, following a review of November and December data.

Technical Analysis

Daily oil price action

The market has slowed down, with the RSI showing a weak momentum. The commodity will need to maintain support at $74.33 to stand a chance of sustaining an upward momentum. The first resistance will likely be at $75.94, beyond which the next target will be at $77.82. A break below $72.20 will move the downward action to the psychological support at $70.81.