Crude Oil Prices Drop to Key Support, With Oil Demand Forecasts Weakening

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Crude oil prices continue to fall as Brent and WTI fall 3.5 percent, bringing the total decrease to nearly 10% since the beginning of the month. The expansion of the Delta variety continues to be a source of concern, particularly in Asia. Following recent outbreaks, Chinese officials conducted mass testing in Wuhan, and China has also placed domestic travel restrictions in medium to high-risk areas, a concerning indicator for the crude oil forecast.

 Along with this, China’s economy has been weakening, prompting analysts to lower their economic estimates. Goldman Sachs, for example, reduced their Chinese Q3 GDP projection to 2.3 percent from 5.8 percent, while their FY GDP forecast was reduced to 8.3 percent from 8.6 percent. Over the weekend, the latest Chinese trade balance statistics reiterated Asia’s lower demand picture, as Chinese crude oil imports fell to 9.71 million barrels per day in July, down from 9.76 million barrels per day the previous month.

Getting closer, the EIA Short Term Energy Outlook, OPEC & IEA Monthly Oil Report, and the EIA Short Term Energy Outlook will provide the most recent indications of oil demand growth for the remainder of H2. If oil demand weakens, the crude price may continue to fall.

On the chart, near-term support is located at $67.44, which corresponds to the swing low from the July selloff. If crude oil fails to hold, it will be exposed to a move to $64.50-65.50, with the 100DMA acting as a significant resistance level on the upside.