Crude Oil Outlook: Entering the Rate Cut Month

Previous Week Recap

US GDP Revision: Upward adjustment from 2.8% to 3%, signaling economic strength
US Core PCE: Remains steady at 0.2%
Chinese Manufacturing PMI: Dropped to its lowest levels in 2024
Chinese Non-Manufacturing PMI: Hovering near yearly lows but still above the 50-expansion mark
Libya's Oil Production: Reduced by 68% due to regional conflicts

Week Ahead

US ISM Manufacturing PMI (Tuesday)
Crude Oil Inventories (Wednesday)
US ISM Services PMI (Thursday)
US Non-Farm Payrolls (Friday)

OPEC Policies

Following the latest OPEC meeting, where production quotas were maintained until October, the possibility of an output increase is beginning to be priced into the markets. Expectations of increased output, as indicated by reports from OPEC members, are adding bearish pressures and driving oil prices closer to their yearly lows.

Global Demand Outlook

On a global scale, the upward revision of US GDP to 3% reflects a positive outlook, but concerns persist with Chinese Manufacturing and Non-Manufacturing PMIs hovering near 2024 lows. The upcoming data, including the US ISM Manufacturing and Services PMIs (Tuesday to Thursday), will be critical, with Friday’s non-farm payrolls report serving as a key indicator that could shape the Fed's decision on the September rate cut.

Crude Oil Inventories

The latest crude oil inventories showed a positive change from -4.6M to -0.8M, but the effect on oil prices has been limited. This is due to the volatile interplay between geopolitical tensions, supply concerns, and mixed demand outlooks from both the US and China, alongside the fluctuating state of the US Dollar near December 2023 lows.

Technical Outlook

Crude Oil Outlook: USOIL – 3 Day Time Frame – Log Scale

Source: Tradingview

Oil remains indecisive as it struggles to break out from its primary consolidation. Throughout August, a smaller consolidation pattern emerged, with lower highs and higher lows, as oil retested its 2024 starting point.

The 3-Day Relative Strength Index (RSI) is trending below the trendline that connects its yearly lows, suggesting a lean towards a bearish trend. If oil breaks below the critical 70-69 support zone, the trend is expected to extend towards the 65 and 60-58 zones. On the upside, if oil re-enters its primary and minor consolidation ranges, surpassing the 77.90 mark, the next levels to watch are 80 and 82, which could reverse the current bullish spikes.

As we enter September, the market's attention is focused on the rate cut sentiment. However, with the likelihood of priced-in effects and the influence of OPEC’s policies, there is a close watch on the potential for bearish pressures.

--- Written by Razan Hilal, CMT on X: @Rh_waves

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.