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Crude Oil Outlook Upside Potential in Question

Article By: ,  Market Analyst
October 9, 2024 9:50 AM

Key Events:

  • Chinese Stimulus Skepticism
  • IEA Short Term Energy Outlook
  • Crude Oil Inventories
  • Middle East Conflicts
  • Technical Analysis UKOIL & USOIL

Chinese Stimulus Measures

After an extended holiday, Chinese stimulus measures sparked a market rally, supporting oil prices amid concerns over Middle Eastern oil supply risks. However, sustained improvement in the Chinese economy is awaited to validate this rally, as the country continues to face deflationary pressures, and the US economy and Dollar maintain robust grounds.

IEA Short Term Energy Outlook

The IEA’s October energy outlook presented a pessimistic forecast for oil prices, lowering the 2025 projection by $7 per barrel to an average of $78. This adjustment aligns with the broader decline in oil demand projections. However, the report also highlighted the upside risk posed by Middle East tensions, which is keeping oil prices in a consolidating range as markets await the outcome of the US elections and the upcoming December 1 OPEC meeting.

Technical Analysis UKOIL and USOIL

Crude Oil Outlook: UKOIL – Daily Time Frame – Log Scale

Source: Tradingview

The recent rebound in UKOIL aligned with the trendline (resistance) connecting the lows of December 2023 and June 2024 at the 81.15 high. This rise is supported by fears over Middle Eastern conflicts and hopes for Chinese economic recovery, but the long-term sustainability remains in question.

Technically, as long as prices remain below the $81 barrier, a neutral to bearish outlook persists. The latest bearish engulfing candlestick and the overbought RSI suggest potential retests of $71 and $68 before confirming a move towards $60.

On the upside, if the Chinese economy improves, Middle Eastern risks decline, and prices close above $81, a bullish scenario can be re-enforced towards $83.80 and $88.

Crude Oil Outlook: USOIL – Daily Time Frame – Log Scale

Source: Tradingview

In contrast to UKOIL, USOIL penetrated its year-long consolidation from below, reaching a high of $78.30. However, like UKOIL, the sustainability of this rise is questionable, as it is driven by supply concerns and stimulus hopes rather than solid economic fundamentals.

USOIL remains biased towards a neutral to bearish outlook below the consolidation, with support levels $70, $65, and $60 in sight. The 3-day RSI continues to respect the resistance line from declining highs between April and July 2024.

On the upside, the $65 support has proven to be a key level for bullish runs since 2021. A close above $80 is necessary to confirm a more sustainable uptrend, with potential to revisit the 2024 highs between $84 and $87.

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

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