Crude Under Pressure

Oil prices have been under heavy selling pressure over the last week with crude futures reversing sharply from highs around the $80 mark. Price is now testing the 72.61 level support, a roughly 9% decline. The move lower comes despite a weaker US Dollar, which typically feeds into higher oil prices through increased demand.  However, with growing concerns over the global demand outlook, oil prices have failed to capitalise.

Chinese Demand Drops

Data released this week shows that Chinese oil demand has fallen by 8% this year. This comes on the back of months of weaker industrial data and reports noting a build up of inventories at processing units linked to Chinese deliveries. Bloomberg also reported earlier in the month that sales at PetroChina and Sinopec have fallen around 5% this year.

Middle East Impact

Away from the demand outlook, developments in the Middle East are also having a clear impact on oil prices. Oil prices have dipped lower in the absence of a retaliatory attack from Iran against Israel, perhaps reflecting the perception that an attack won’t materialise. Additionally, with Israel submitting a new ceasefire proposal to Hamas, traders are weighing the potential of a de-escalation of violence in the region which would dilute oil supply risks.

EIA in Focus

Looking ahead today, focus will be on the latest EIA data. The market is looking for a fresh drawdown of 2 million barrels on the back of the prior week’s 1.4 million barrel surplus. Any upside surprise should further weigh on sentiment as we cross through the middle of the week.

Technical Views

Crude

The sell off in crude has seen the market reversing back under the 77.64 level. Price is now testing support at the 72.61 level and with momentum studies bearish, risks of a further push lower are seen here. Below 72.61, 67.45 will be the next support to watch with the bear channel lows in that region also.