Black Gold in a Sea of Green as Supply Cuts Take Effect 

Despite rising demand concerns, the WTI futures (NYMEX: CL) has been enjoying some upside momentum, on track for a fourth consecutive day in the green. With supply tightening and demand receiving a boost from China’s pledge to provide additional policy support to its struggling economy, the futures pounced on its way to three-month highs. 

Chinese officials indicated that they would adjust their policies in the property market promptly to stimulate demand in the struggling sector of their economy. These signals boosted the demand sentiment for oil, aided by hopes of a potential end to the Federal Reserve’s monetary policy hiking cycle. The improving demand indicators boosted the futures, while support was also found on the supply side, with the OPEC + production cuts tightening supply. Additionally, the Baker-Hughes Oil Rig Count dropped from 537 to 530 on Friday, indicating that supply could draw further as we advance.  


On the 4H chart, a longstanding ascending triangle has formed as the upward momentum started the retracement process from the late June bottom. While the futures have pushed through the 61.8% Fibonacci retracement at $77.20 per barrel (BLL) and the daily pivot point at $78.15/BLL, it faces resistance from the channel to continue the momentum. 

A breakout from the ascending channel could get confirmation from a daily close above the 78.6% Fibonacci retracement at $79.98/BLL. From there, the bullish price action could push on toward higher resistance at $80.63/BLL. 

However, if the futures continue within the channel, a pivot off the channel resistance could reverse the shorter-term trend for a retest of the pivot point at $78.15/BLL. A sustainable move lower in the upcoming sessions could shift the focus to channel support at the Fibonacci golden ratio. Hawkish central bank actions could catalyze a breakdown, where support exists at $75.94/BLL and $75.25/BLL.  


While demand concerns remain, the WTI futures received a welcome boost in sentiment from China’s pledge to impose additional stimulus policies. While the supply cuts continue to tighten output, demand improvements support the upside momentum. A daily close above $79.98/BLL could signal an additional leg up toward $80.63/BLL. However, if the channel resistance holds, the futures could continue the trend within the channel, where the daily pivot point at $78.15/BLL could become topical once more.  

Sources: Koyfin, Tradingview 

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