Q4 2024 Crude Oil Outlook: Oil Bulls Defend Support- 2023 Consolidation Breakout Pending

Q1 – Q3 Oil Market Review

WTI Crude Oil – Weekly Time Frame

Source: Tradingview

At the beginning of 2024, crude oil prices exhibited a positive uptrend, supported by a combination of rate cut expectations and OPEC supply cuts. This propelled oil from a low of $67.87 to a high of $87.30. However, as the year progressed into Q3, oil consolidated, forming lower highs and higher lows. In early September, crude oil broke out of this consolidation to the downside, driven by concerns over weakening Chinese demand, contraction in the US labour market, and OPEC's move towards increasing output.

Following the sharp breakout in September, which was accompanied by rising put volumes during the final months of 2024, according to the CME, and OPEC and IEA's downward revisions of oil demand projections, crude oil found strong support at the critical $65 level—a support that has held firm since December 2021. The robust rebound was fueled by positive market sentiment in response to the Fed's substantial 50-basis-point rate cut, alongside escalating concerns of a ‘new phase of conflict’ in the Middle East, particularly as the one-year anniversary of the Israel-Hamas war escalation in October 2023 approaches.

Crude Oil Q4 Forecast

• Chinese Economic Data
• US Economic Data
• OPEC Policies and Forecasts
• US Presidential Elections: Aggressive Drilling vs Clean Energy Production
• Geo-political Tensions and Supply Disruption Risks
• Transitions Toward Renewable Energies

WTI Crude Oil – Weekly Time Frame – Log Scale

Source: Tradingview

Beyond the rebound from the 65-support, oil is still trading below the year-long consolidation/triangle pattern. A bearish parallel channel extended from the top of the consolidation is being respected, with the mid-level serving as a strong support/resistance-zone, and can form a bearish bias for the commodity until proven otherwise.

The indecision reflected on the price chart stems between the positive expectations on the US economy, the steady contraction of the Chinese economy, supply disruption concerns over geopolitical tensions between Russia, Ukraine, and in the Middle East, OPEC’s downward revision for oil demand for the remainder of 2024 and 2025, IEA’s negative short-term energy outlook, and the notable shift in the usage of renewable energies in 2024.

Chinese Economic Data

The People’s Bank of China kept its loan prime rates on hold for the second consecutive month following its 10% rate cut in June. Recent economic indicators have been concerning, with Chinese Foreign Direct Investment (FDI) and new loans plunging to 15-year lows. Additionally, manufacturing PMI metrics have retested 2024 lows, falling below the expansionary mark at 49.1, coupled with deflation. These factors have dampened oil demand, prompting both OPEC and the IEA to revise their oil price projections downward. With the Fed's aggressive rate-cutting pace, pressures on the Chinese economy are expected to ease, and further rate cuts towards the year-end could be expected to boost the pace of economic growth.

US Economic Data

The Fed’s recent 50-basis-point rate cut was implemented to bolster the labour market and guide the economy towards a soft landing. This decision lifted broader market sentiment, with positive market trends emerging, a weakening US dollar, and a favourable impact on the US oil rebound from the critical $65 mark. As we approach the end of the year, key developments in US economic data—including labour market performance, the strength of the US dollar, and inflation rates—are expected to play a significant role in shaping oil prices.

OPEC Policies and Forecasts

Amid the recent decline in oil prices to fresh 2024 lows, OPEC has maintained its stance on its 2024 production cut policy. The slowdown in the Chinese economy, combined with the significant global shift towards renewable energy, prompted OPEC to issue a second downward revision of oil demand for 2024, lowering the forecast from 2.11 million barrels per day (bpd) to 2.03 million bpd. This followed a similar reduction in China's projected growth for 2024, revised from 700,000 bpd to 650,000 bpd. The next OPEC meeting is on December 1.

US Presidential Elections: Aggressive Drilling vs Clean Energy Production

Both parties are in favour of lower energy prices, but with different approaches:

Former President Trump’s Agenda:

• Trump aims to maintain the US as the top oil producer, advocating for aggressive drilling and fossil fuel dominance. He opposes renewable energy, viewing it as costly and unreliable, and promises to cut energy prices by 50%.

Vice President Kamala Harris’s Agenda:

• Harris promotes a shift towards renewable energy, focusing on combating climate change and reducing reliance on oil. Her plan is to lower energy prices by supporting clean energy production and tightening environmental regulations.

Both parties aim to lower energy prices, aligning with the potential bearish trend on the crude oil chart. A further downturn could be on the horizon, if geopolitical tensions don’t escalate.

Technically Speaking

WTI Crude Oil – Weekly Time Frame – Log Scale

Technically speaking, the combination of factors on the Crude Oil charts is tracing sideways trends, with the 65-level standing at a critical point between another neutral/bullish trend and another extended downtrend.

Bearish Scenario: A break below the $65 support could extend the downtrend towards the $60 level, with a significant potential support at $57.70. This level aligns with the 0.618 Fibonacci retracement between the lows of 2020 ($17.70) and the highs of 2022 ($122). More extreme bearish projections lie at $51 and $40, levels that align with Fibonacci retracement levels of 0.681 and 0.786, potentially reflecting the broader transition towards renewable energies.

Bullish Scenario:A firm rebound from $65 could set the stage for a bullish to neutral trend. A close above the $76 barrier and re-entry into the year-long consolidation zone could push oil prices towards key resistance levels at $84, $87, and $92. These levels need to be surpassed to confirm a steady uptrend for oil.

The outlook for crude oil in Q4 2024 is shaped by a mix of global economic, geopolitical, and environmental factors. High volatility can be expected towards the year-end, driven by conflict shifts, the December 1 OPEC meeting, evolving US and Chinese economic data, and changes in crude oil demand and inventories as we enter the Autumn season.

-- Written by Razan Hilal, CMT, Market Analyst

Follow Razan on X: @RH_Waves