Market update: crude oil prices struggle as China growth plans fail to convince

Crude oil prices dropped initially on Tuesday, as China's latest economic revival plans seemed to underwhelm investors, yet they recouped some losses by the European morning.

Worries about Chinese energy demand have been a problem for oil bulls for some time as the world’s number two economy struggles to regain anything like its pre-pandemic vigor. Beijing has announced its intentions to ‘transform’ its development mode, and address endemic overcapacity, but its 2024 growth target of 5% perhaps only served to remind investors that China remains in the slow lane, by its own recent standards.

The Organization of Petroleum Exporting Countries and its allies (the so-called ‘OPEC Plus’ group) has extended production cuts into this year’s second quarter, but that move was widely expected and didn’t affect prices much. More broadly the market remains caught between the prospect of plentiful supply from non-OPEC producers, and uncertain demand as the industrialised economies struggle with meager growth or, in some cases, outright recession.

Looking ahead: supply uncertainties and economic indicators influence oil market dynamics

Some economists think supply could tighten into next year, however, as production booms seen last year in the likes of the United States and Guyana won’t necessarily be repeated in 2024. Conflicts in the Middle East and Ukraine also put upward pressure on prices, and its notable that, despite investor wariness, the overall uptrend for US crude prices remains in place.

This week will bring plentiful economic news out of the US, culminating in Friday’s release of the official non-farm payrolls data, which sent the dollar soaring last month. Signs that the US economy continues to motor should probably be good news for the oil market but probably only in so far as rate cuts remain on the table this year. Closer to the market, the Energy Information Administration’s snapshot of oil inventories for last week will be released on Wednesday.

US crude oil technical analysis

The US West Texas Intermediate Benchmark is inching up towards a trading band last seen in late October, and early November 2023 which bars the way back to that year’s highs.

The base of that band currently offers resistance at $80.21. Prices are hovering toward the middle of a broad uptrend band which suggests reasonable support at $74.23 and resistance at $82.69. Price moves have been smaller in recent days, however, and there are signs that the uptrend band could be narrowing, a process which might be explained by this week’s significant economic event risk.

Retracement support comes in at $77.76, and the market will probably retain its overall bullish bias above that point. IG’s own sentiment data finds traders extremely bullish at current levels, with fully 74% long. This is the sort of rather extreme positing which might argue for a contrarian bullish play, even if only a short-term one.

CFDs on WTI crude oil chart

^{This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.}