WTI futures (NYMEX: CL) is heading for its lowest level in two weeks, remaining below the psychological $80 per barrel (BLL). Following the gap-up on the announcement from OPEC+ to cut production, the bulls have not been able to gain momentum to shift higher. Now, as the economy starts to slow down, energy demand concerns are driving the futures lower.
On Wednesday, the EIA reported a reduction in inventories of -4.581M, while analysts only expected a -1.088M reduction. Along with the inventory fall, strong economic growth data from China also supports the outlook for oil. However, the global economic growth story prevents significant upside moves. Furthermore, the futures are pressured as the Iraq Federal Government took a step with the Kurdistan Regional Government to resume exports from Ceyhan, a Turkish port, after a halt in these exports last month.
Technical
Looking at the 4H chart, the bears have stepped forward in forming a descending channel following the surge on the announced production cut two weeks ago. The futures peaked at around $83.50/BLL last Wednesday, from where the bears enforced a leg below $80/BLL.
At $78.39/BLL, the bears are looking to test the channel support at $78.05/BLL. If support holds, the futures can continue within the channel, where a bounce up toward $78.97/BLL at the 23.6% Fibonacci retracement is on the cards. The channel resistance got established at the daily pivot resistance around $79.67/BLL. A bullish break could see a convergence with the 50-day moving average at the $81.25/BLL resistance.
However, with the fears surrounding energy demand, the bears could break down the channel support for a move down to $76.18/BLL. In this case, the Fibonacci midpoint at $73.92/BLL could become topical if demand pressures persist.
Summary
Even though the inventory report yesterday signalled short-term demand strength, the longer-term outlook on a potential global economic downturn due to the high-interest rate environment could prod the bears to enforce further downside to $78.05/BLL and $76.18/BLL.
Sources: Koyfin, Tradingview, Reuters
