Crude Oil Outlook: Oil Climbs Alongside Broader Market Sentiment

Key Events:

• Crude oil inventories drop by 1.6 million barrels
• Chinese Loan Prime Rates remain unchanged 50-bps
• Fed rate cut boosts Dow and S&P 500 to new 2024 highs
• Rising uncertainty due to Middle East geopolitical tensions
• Upcoming statements from FOMC members, including Powell next week

The Fed's significant 50-bps rate cut has relieved pressure on global monetary policies, including that of the People's Bank of China, which has kept its rates unchanged despite ongoing property sector challenges and a downturn in business and consumer sentiment. Further rate cuts are anticipated by the year-end to stimulate overall economic growth. However, bearish pressures on oil remain as demand from the Chinese economy continues to weaken.

On the other hand, from a US economic perspective, the Fed's aggressive cut has set the stage for a more optimistic market outlook, with oil prices climbing back above $70. Next week's statements from FOMC members, including Powell's address on Thursday, are expected to further influence market sentiment.

In terms of geopolitical tensions, uncertainty surrounding potential conflict escalation in the Middle East adds to oil price volatility, with concerns about supply disruptions lingering.

Technical Outlook

Crude Oil Outlook: USOIL – 3 Day Time Frame – Log Scale

Source: Tradingview

Following the Fed's rate cut and the resulting bullish market sentiment that pushed indices to new 2024 highs, oil has managed to maintain its rebound above the $70 mark. However, the ongoing economic weakness in China continues to weigh on the pace of oil's recovery.

Despite this, strong sentiment in the US market and concerns over potential war-related disruptions are supporting the positive rebound. On the upside, the $76 level is expected to act as a key resistance and a pivotal point for confirming a neutral-to-bullish scenario. On the downside, the $65 support level remains crucial as a confirmation point before signaling a deeper decline in oil prices.

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