WTI expected to remain range-bound

OIL prices remained fairly unchanged despite an interest rate cut in China last week, with the market disappointed by the modest scale of monetary action. The People’s Bank of China cut its one-year prime lending rate for the first time in 10 months, bringing it down by 10 basis points to 3.55 per cent. The move was insufficient to quell concerns about demand for energy in the world’s second-largest economy.

On the supply front, reports of increased supply coming into the market from both Iran and Russia despite Western sanctions are expected to counter top oil exporter Saudi Arabia’s decision to slash production by a million barrels per day to nine million barrels early this month. Many Western economies are still firmly in tightening mode, which casts clouds over oil demand, with the Federal Reserve providing a hawkish guidance following the June Fed meeting as the revised dot plot now reflects a higher terminal rate than that released in the previous summary of economic projections.

Looking at the technical charts, oil bulls are keen to defend the recent range support level of US$67/barrel, which has seen rebounds since early May 2023. During this period, the bears have been equally resilient in capping West Texas Intermediate (WTI)’s price at around US$74/barrel, which was a previous support level from January to March this year, now turned resistance. Furthermore, the bulls will face an uneasy task of breaking out of the current range with a strong downtrend resistance line right above that, which has kept the commodity trending lower since August last year. Moreover, the Moving Average Convergence Divergence technical indicator is also consolidating below the zero line which suggests the lack of bullish momentum present in WTI currently.

Weak oil demand from the largest economies coupled with plentiful and growing supply could undo the upside pressure by Saudi Arabia’s output cuts and keep WTI price movements weak. WTI is likely to remain range-bound till further market response to Fed chair Jerome Powell’s congressional testimony last week.

The writer is research analyst at Phillip Securities