(MENAFN- Investor Ideas) crude oil (WTI) is trading at $76.47, and brent crude is at $79.99 during European trading on Tuesday. It seems that oil traders are taking profits after prices saw a sharp rise for three consecutive days, which then rebounded before hitting a key technical level near $77.60. This coincides with the market absorbing the sudden disruption in Libyan oil production due to a local Political dispute between the Benghazi government and the officially recognized government in Tripoli over who should become the next head of the central bank.
In my view, the supply disruption in Libya cannot be easily compensated for regarding light sweet crude, which is in high demand because it can be easily refined into gasoline or kerosene. However, recent price increases have not been due to these disruptions but rather for purely technical reasons related to recent oil price movements.
Meanwhile, the U.S. Dollar Index (DXY) is also experiencing some profit-taking after its recovery lasted only one day. Markets remain optimistic about significant interest rate cuts by the U.S. Federal Reserve. In this scenario, I believe the biggest risk is that strong incoming U.S. economic data could mitigate or even rule out future interest rate cuts if the U.S. economy shows renewed strength.
While serious issues from the sudden closure of Libyan oil fields, which produce light sweet crude in high demand, could indeed raise supply concerns, recent Chinese data reveal that Chinese refineries are facing significantly reduced demand amidst rising sales of electric vehicles in China. This indicates that oil is already suffering due to slower demand from the manufacturing and construction sectors.
Goldman Sachs has joined Morgan Stanley in lowering its Brent crude price forecast to $77.00 per barrel by 2025, as OPEC is likely to reverse its voluntary supply cuts. In my opinion, the market is still contemplating the next move by OPEC. Earlier this year, OPEC announced plans to increase production in the fourth quarter with the market recovery, but prices remain low. This has led to Saudi Arabia's oil export sales falling to a three-year low of $17.7 billion in June. This might delay OPEC's plans to support prices.
Today, the American Petroleum Institute will release its weekly crude oil inventory numbers for the week ending August 23. A decrease of 3 million barrels is expected, which could support short-term price increases.
In the United States, despite a decrease in drilling activity, production rates remain at an all-time high of 13.4 million barrels per day. I believe that productivity is increasing with more oil extracted from each well. This is good news for oil companies' profitability but hardly disguises their hesitation to increase investment in production and global market share, which could negatively impact the markets.
Commercial U.S. inventories remain below last year's levels, though within recent years' normal ranges. This, in my opinion, makes oil market fluctuations volatile and imbalanced in the short to medium term until the global supply and demand balance returns.
Technical Analysis of Crude Oil (WTI) Prices:
Oil quickly rose to a technical intersection near $77.60. From this level up to $79.00, four different resistance levels will likely limit further price increases. The combination of the simple moving averages (SMA) and the descending trendline should be the key to keeping the price movement stable at current levels. With bearish forecasts from Goldman Sachs and Morgan Stanley, this might mark the end of the recent oil price rally.
Technically, on the positive side, the double level at $77.65 aligns with both the descending trendline and the 200-day simple moving average (SMA). If bulls manage to break through this level, the 100-day SMA at $78.45 could lead to a rebound.
On the downside, the low from August 5 at $71.17 stands as the first support level against a decline. Below $70.00, if breached, the main support is at $68.00, which represents the first strong demand level for oil, followed by $67.11, the lowest point of the triple bottom since June 2023.
In the medium to long term, it can be said that short-term technical factors have come into play. The three-day upward wave has lost momentum as the price of crude oil surpassed $77. This is a long-term resistance zone, and above this level, resistance will be strong in the range of $77.60-$78.20, where the 200-day and 50-day moving averages are located. Additionally, the 200-week and 50-week moving averages are near $77.90 and $78.60. The previous support level, which lasted for several years, may now act as significant resistance against price increases.
To clarify further, if pressures intensify, the price may not find substantial technical support until the $70-$71 area, where the lowest levels of the end of 2022 are situated. The next support level is at $64, which has served as a turning point for the general price trend several times over the past seven years.
Support Levels: $76.10 - $75.50 - $74.50
Resistance Levels: $77.40 - $78.00 - $79.20
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