The Oil Market Is Cooling Down

Oil Weekly Chart

Using UKOil (FXCM's Brent CFD) as a general reference, the heat that drove oil prices in August and September has declined. The stochastic, a measure of momentum, has dropped below 80 and is angled down (red rectangle). Last week's candle looks to have charted a lower peak, hinting at the cooling down in the energy market. However, to confirm the lower peak, this week's candle will need to close below last week's low (green horizontal).

Comment

The oil price is reflecting fears about a slowdown in European demand. This is offsetting supply concerns from the Israel-Hamas conflict.

Unexpectedly, the business activity in the Eurozone has taken a grim turn this month with disappointing PMIs printing yesterday. This has raised concerns about the possibility of a recession looming over the region. This downturn is casting a shadow over the prospects for oil demand, as the lacklustre economic growth has translated into reduced crude oil consumption by the region's refineries, which is significantly lower compared to the same period last year.

China oil demand needs to be watched. The globe's largest oil importer greenlit a significant move by approving a bill to issue an impressive sum of one trillion yuan in sovereign bonds. This financial decision also paves the way for local governments to tap into their 2024 debt quota, a strategic manoeuvre aimed at stimulating and fortifying the national economy.

However, the demand for crude oil in China may encounter constraints due to Beijing's decision to impose a cap on its oil refining capacity. This measure aims to limit the capacity to one billion metric tons by 2025, a strategic move designed to streamline the expansive oil processing sector and address concerns regarding carbon emissions.