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Crude Oil Update: Oil Slips Below the Critical $70 Zone

Article By: ,  Market Analyst
September 4, 2024 10:00 AM

Key Events

  • 2024 oil gains are erased as USOIL and UKOIL retest December 2023 lows
  • US ISM Manufacturing PMI falls short of expectations
  • US ISM Services PMI (Thursday)  
  • US Employment indicators (Wednesday - Friday)
  • FOMC members Williams and Waller statements following the NFP report on Friday

Manufacturing PMIs (China – US)

The US ISM Manufacturing PMI came in at 47.2, below both the 50-expansion mark and the expected 47.5, increasing concerns about global demand. This follows China’s weaker-than-expected Manufacturing PMI of 49.1, which has added to broader market concern as we enter September.

US Dollar Index, US Employment Indicators, and FOMC Member Speeches

Despite expectations of a rate cut in September, the US Dollar remains above its December 2023 lows, exerting additional pressure on oil. The durability of this support will be tested by Thursday's ISM Services PMI, an indicator critical to inflation trends, and Friday's non-farm payrolls report, which will influence the expected rate cut magnitude. High volatility is anticipated to close out the week, especially following remarks from FOMC members Waller and Williams.

OPEC Policies

OPEC's early 2024 interventions near current oil trading levels involved reducing output. The latest meeting highlighted the flexibility of future policies, depending on market conditions for October, leaving room for further interventions. Currently, bearish pressures dominate, but there is cautious anticipation of potential bullish intervention.

Technical Outlook

Crude Oil Update: USOIL – Weekly Time Frame – Log Scale

Source: Tradingview

Crude oil has broken below its extended consolidation, entering a critical zone marked by significant wicks and rebounds between May and June 2023. This raises risk management concerns around the $67-68 level.

A close below the December 2023 low of $67.80 could push the trend toward the first support at $65.30, with further downside risk to the $60-58 range. On the upside, resistance is expected between $71.90 and $74, aligning with the lower border of the previous consolidation.

Crude Oil Update: UKOIL – Weekly Time Frame – Log Scale

Source: Tradingview

In a similar pattern to USOIL, Brent is testing its December 2023 lows near the $72.30 level, with volatility risks rising as it nears the $71 zone—an area known for significant wicks and rebounds. A close below the $71 zone could extend the downtrend towards $67.40 and possibly $60.

On the upside, potential resistance levels are near $75.20 and $77.40, where bullish corrections could occur.

Given OPEC’s earlier intervention at the beginning of 2024, which helped stabilize oil prices, and the current rate cut sentiment, the possibility of further intervention remains on the table as oil approaches these critical zones. Additionally, geopolitical tensions continue to loom in the background of the charts, adding an element of caution to the market's direction.

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

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