Crude Oil Outlook: Entering the Rate Cut Month

Previous Week Recap

• US GDP Revision: Upward adjustment from 2.8% to 3%, signaling economic strength
• US Core PCE: Remains steady at 0.2%
• Chinese Manufacturing PMI: Dropped to its lowest levels in 2024
• Chinese Non-Manufacturing PMI: Hovering near yearly lows but still above the 50-expansion mark
• Libya's Oil Production: Reduced by 68% due to regional conflicts

Week Ahead

• US ISM Manufacturing PMI (Tuesday)
• Crude Oil Inventories (Wednesday)
• US ISM Services PMI (Thursday)
• US Non-Farm Payrolls (Friday)

OPEC Policies 

Following the latest OPEC meeting, where production quotas were maintained until October, the possibility of an output increase is beginning to be priced into the markets. Expectations of increased output, as indicated by reports from OPEC members, are adding bearish pressures and driving oil prices closer to their yearly lows.

Global Demand Outlook

On a global scale, the upward revision of US GDP to 3% reflects a positive outlook, but concerns persist with Chinese Manufacturing and Non-Manufacturing PMIs hovering near 2024 lows. The upcoming data, including the US ISM Manufacturing and Services PMIs (Tuesday to Thursday), will be critical, with Friday’s non-farm payrolls report serving as a key indicator that could shape the Fed's decision on the September rate cut.

Crude Oil Inventories

The latest crude oil inventories showed a positive change from -4.6M to -0.8M, but the effect on oil prices has been limited. This is due to the volatile interplay between geopolitical tensions, supply concerns, and mixed demand outlooks from both the US and China, alongside the fluctuating state of the US Dollar near December 2023 lows.

Technical Outlook

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

Source: Tradingview

Oil remains indecisive as it struggles to break out from its primary consolidation. Throughout August, a smaller consolidation pattern emerged, with lower highs and higher lows, as oil retested its 2024 starting point.

The 3-Day Relative Strength Index (RSI) is trending below the trendline that connects its yearly lows, suggesting a lean towards a bearish trend. If oil breaks below the critical 70-69 support zone, the trend is expected to extend towards the 65 and 60-58 zones. On the upside, if oil re-enters its primary and minor consolidation ranges, surpassing the 77.90 mark, the next levels to watch are 80 and 82, which could reverse the current bullish spikes.

As we enter September, the market's attention is focused on the rate cut sentiment. However, with the likelihood of priced-in effects and the influence of OPEC’s policies, there is a close watch on the potential for bearish pressures.

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