WTI tumbles to four-month lows, down more than 5% on dented demand prospects

• WTI crude oil plummets to $72.55 per barrel, as US crude inventories build more than expected.
• Soft US economic indicators, including rising unemployment claims and a dip in industrial production, fuel concerns over weakening oil demand.
• Despite the downward trend, potential production cuts by Saudi Arabia and Russia and optimistic forecasts from Commerzbank offer some support to oil prices.

West Texas Intermediate (WTI), the US crude oil benchmark, plummets to a four-month low of $72.22 in late trading during the New York session. Worries amongst investors and the US oil inventory build dragged WTI prices down by more than 5%, as it is changing hands at $72.55 after hitting a high of $76.58.

WTI prices pressured by soft US economic data, global demand concerns

Wednesday’s data from the US Energy Information Administration (EIA) revealed a large build in the crude oil of more than 3.6 million barrels in the United States last week, spurring a leg-down in the black gold. That, alongside soft data in the US painting a scenario of a faster economic deceleration, caused a drop in WTI due to increased concerns demand would diminish.

US industrial production plunged on Thursday due to the United Auto Workers (UAW) strike. At the same time, unemployment claims for the last week rose the most in three months and peaked at around 230K, exceeding forecasts of 220K, suggesting the labor market is easing. Wednesday’s US Retail Sales report came soft, suggesting American households are beginning to spend less, ahead of the Christmas season.

OPEC and the International Energy Agency (IEA) predicted that fourth-quarter supply would tighten, though US data proves the contrary.

Meanwhile, China´s expected slowdown in oil refineries added to the list of headwinds dragging WTI prices lower. Yet, Industrial Production in China advanced, as well as Retail Sales. Nevertheless, weak economic growth in Japan’s economy during Q3, damages the prospects of higher oil prices, as Japan is one of the world’s largest energy importers.

Therefore, WTI prices would be under pressure. Still, Saudia Arabia and Russia’s pledge to cut production by 1.3 million barrels toward the end of the year would cushion oil prices.

Analysts at Commerzbank expect oil prices to climb above $80 in Q1 2024. They wrote that “If Saudi Arabia were to stick with its current output level, this would substantially reduce the risk of an oversupply and thus allow the price to recover slightly to $85 per barrel (from its current level; the previous forecast assumed a drop to $85).”

WTI Price Analysis: Technical outlook

From a daily standpoint, WTI has shifted bearishly after dropping below the latest cycle low seen on August 24, at $77.64, opening the door for further losses. Rallies could be seen as better entry prices for shorts, which could be looking to push prices toward the June 28 swing low of $67.10, well below the $70.00 mark. On the flip side, if buyers lift prices above the November 8 daily low of $74.96, that could pave the way for a leg-up toward the $80.00 mark.