WTI crude oil bears attack $86.50 as demand fears supersede OPEC+ output cut

• WTI holds lower ground at weekly low after snapping two-day uptrend the previous day.
• OPEC+ production cut appeared shallow, fears of recession exerted additional downside pressure.
• US emergency crude oil reserves fall to the lowest since 1984.
• China trade numbers, Weekly API inventories and Fedspeak will be crucial for near-term directions.

WTI crude oil prices hold lower ground near $86.50, after posting the biggest fall in a week the previous day, as traders fear demand drawdown during Wednesday’s Asian session. In doing so, the black gold ignores the output cut decision from the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+.

Fears of recession grew after firmer US data bolstered hawkish Fed bets while virus woes in China challenged energy demand from the world’s biggest industrial player. US ISM Services PMI rose to 56.9 versus 55.1 market forecast and 56.7 prior. However, the S&P Global Composite PMI and Services PMI eased to 44.6 and 43.7 respectively versus 45.0 and 44.1 initial forecasts in that order. Even so, the US Dollar Index (DXY) rose after the release and refreshed a 20-year high. It should be noted that the CME’s FedWatch Tool signals a 72.0% chance of 50 basis points (bps) Fed rate hike in September versus 57% one-day ago.

Elsewhere, China’s covid woes and the hawkish hopes from the European Central Bank (ECB) also weigh on the WTI prices. “China has eased some COVID-19 curbs but extended lockdowns in Chengdu, which added to worries that high inflation and interest rate hikes will hit oil demand. The European Central Bank is widely expected to lift rates sharply when it meets on Thursday,” said Reuters.

It should be noted that OPEC+ has agreed to lower oil output targets by 100,000 barrels per day in October. Reuters stated, “The decision essentially maintains the status quo as OPEC has been observing wild fluctuations in oil prices.”

Further, crude inventories in the US Strategic Petroleum Reserve (SPR) fell 7.5 million barrels (Mb) from September 2 to 442.5 Mb, their lowest level since November 1984, per the Department of Energy, reported Reuters, which in turn should have favored oil bulls. On the same side, the latest stimulus from the major economies could have been to defend themselves from the energy crisis amid Russia versus the West tussles.

Moving on, China’s monthly trade numbers will precede the Fedspeak and weekly oil inventories from the industry source, namely the American Petroleum Institute (API), prior 0.593M, could direct short-term oil price moves. Above all, fears of an economic slowdown could weigh on the prices of black gold.

Technical analysis

WTI crude oil remains pressured between the 21-DMA and the lowest levels since early 2022, marked in August, respectively around $90.15 and $85.40.