• Oil prices remain low due to recession fears and concerns about demand.
• US inventories rose unexpectedly, adding to the pessimistic mood, according to EIA data due later in the day.
• Geopolitical tensions in the Middle East and China’s economic prospects are also contributing factors.

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Oil prices continued to struggle yesterday as rising recession fears kept optimistic investors away. The prospect of a recession is exacerbating concerns about global demand and putting additional downward pressure on oil prices.

There was a brief attempt to boost oil prices overnight as market sentiment temporarily improved. Market participants are closely monitoring geopolitical tensions as any major conflict in the Middle East could drastically affect supplies and support oil prices.

China’s economic outlook remains another factor weighing on oil prices. Recent data showed that Chinese oil imports fell to their lowest level since September 2022.

The pessimistic mood was further reinforced by the unexpected rise in US inventories. According to PI data, crude oil inventories rose by 176,000 barrels in the week to August 2, while analysts polled by Reuters had expected a decline of 700,000 barrels.

Further insights into US inventories will be available later today when the Energy Information Administration (EIA) releases its weekly inventory data at 14:30 GMT.

Source: All market-moving economic news and events can be found in the MarketPulse economic calendar. (click to enlarge)

As it stands, the upcoming EIA data will not change the overall outlook on its own. Geopolitical risks remain the main concern and keep market participants on tenterhooks. Additional worries about a recession or a global economic slowdown could further depress oil prices.

Technical Analysis Oil

From a technical perspective, Brent has been on a downward trend since the July 5 highs of around 88.55, bringing the price within a blink of an eye of the lower boundary of the channel that has existed since March 2023.

The bottom of this pattern is around 75.00, a psychological level, and that could prove to be a tough nut to crack for oil bears.

Brent Oil Weekly Chart, August 7, 2024

Source: TradingView (click to enlarge)

The drop to a H4 chart and the price appears to be recovering. Whether oil can regain momentum remains to be seen, but the H4 technical picture gives cause for hope.

After breaking the descending trend line, there is a possibility of a recovery unless there are new developments around a Middle East peace deal and improving sentiment. A close of the H4 candle above 78,500 will result in a structural change and could lead to more buying pressure.

Brent oil chart H4, August 7, 2024

Source: TradingView (click to enlarge)

Support

• 76.50
• 76,00
• 75.00 (psychological level)

Resistance

Follow Zain on Twitter/X for more market news and insights @zvawda

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Zain is an experienced financial market analyst and lecturer with a wealth of experience in the world of forex trading, economics and market analysis. He began his career in sales and business development, but his passion for economics and technical analysis drove him to a career as an analyst.

He has spent the last three years as an analyst honing his skills in various areas of finance including technical analysis, economic data interpretation, price action strategies, and analyzing geopolitical impact on global markets. Zain is currently working on his Capital Markets & Security Analyst (CMSA) certification with the Corporate Finance Institute (CFI), where he has completed modules in Fixed Income Fundamentals, Portfolio Management Fundamentals, Equity Market Fundamentals, Introduction to Capital Markets, and Derivatives Fundamentals.

He is also a regular guest on radio and television shows in South Africa, providing insights into global markets and the economy. He has also helped develop a financial markets course recognised by BankSeta (Banking Sector Education and Training Authority) at NQF Level 6 in South Africa.