WTI crude oil prices continue to pull back, failing to consolidate above the level of 74. Market participants quickly switched their attention from OPEC+ cuts to concerns about recession and declining demand for fuel. Yesterday the oil price has not fallen below the level of 70, but with the current news background another downward impulse is possible.
The pessimistic mood of traders in the oil market increased after the release of Chinese trade balance statistics. Imports decreased by 4.5%, but still showed better dynamics than expected (-8%), while the situation with exports has sharply deteriorated. Export of Chinese products to the global market fell by 7.5%, while the forecasted minimum decline was 0.4%. Obviously, China's economic recovery is hindered by weak demand in other countries.
Moreover, the suppressed growth rate of the economy leads to a decline in fuel consumption in the U.S. The Energy Information Administration (EIA) predicts that diesel demand in the country will continue to fall through 2024. Since the COVID-19 pandemic, the main driver of GDP growth has been service sector activity, where fuel consumption is much lower compared to industry. As a result, demand is not as high as it used to be.
According to the U.S. Department of Energy, the nation's diesel fuel consumption declined in the first quarter of 2023 compared to the same period last year. This trend may continue in the future, causing fuel demand in the second quarter to be even lower than the 2015–2019 average. In 2024, the above-mentioned consumption figures are likely to fall even further.
The failure to overcome the 74–74.5 range is a significant negative factor for the further dynamics of WTI oil prices. The new local maximum was lower than the previous one, which confirms the strength of the existing downtrend. Due to this fact it is worth to expect the continuation of the price movement towards the level of 70.
The following trading strategy can be suggested:
Sell WTI oil in the range of 71–71.5. Take profit — 70. Stop loss — 72.5.
This content is for informational purposes only and is not intended to be investing advice.
