Will Oil's trend continue or rebound?

The reduction in estimates is said to be driven by economic difficulties in China, which is facing challenges in the housing market and shifting more towards natural gas—a cheaper and cleaner alternative to oil—as part of its energy transition.

The mainstream reports on oil

Despite these revisions, OPEC’s estimates remain more optimistic than other industry predictions. According to Andy Lipow, president of Lipow Oil Associates, OPEC+ has been overly positive in their projections, with demand growth estimates significantly exceeding those from the EIA (Energy Information Administration) or IEA (International Energy Agency). Lipow described the revision as an acknowledgment of the ongoing supply and demand imbalance in the market.

Wall Street analysts have also become more pessimistic about oil prices, in part due to sluggish demand from China. Economic concerns in both the US and Europe, where the summer driving season is winding down, have further contributed to the decline in oil prices.

OPEC+ recently postponed plans to unwind some of its voluntary production cuts, initially scheduled for October. Meanwhile, the US Energy Information Administration anticipates a rise in Brent prices by the end of 2024, citing a mismatch between global consumption and production due to OPEC+ cuts. The agency projects Brent crude prices to average $82 per barrel in the fourth quarter of 2024 and rise to $84 per barrel in 2025.

In addition, financial media is citing the potential impact of tropical storm Francine, which is headed toward Texas and Louisiana, however, economic analysts say the storm is unlikely to have a major effect on supply or prices unless there is severe flooding or a significant storm surge.

Crude oil has been trading near its lowest levels of the year, with futures having wiped out all of their gains from earlier in 2024. WTI has dropped approximately 5% year to date, while Brent crude has fallen around 8% over the same period.

China’s economic weakness is indeed a significant factor influencing global markets, including oil demand. The country has been facing several challenges, particularly in its real estate sector, which has led to slower economic growth. Given China’s role as one of the world’s largest oil consumers, any slowdown in its economy can have a ripple effect on global oil demand.

Additionally, China’s pivot toward natural gas as part of its energy transition could reduce its reliance on oil, further weakening demand. Industries such as manufacturing and construction, which are heavy consumers of diesel, have also been under pressure, contributing to lower overall demand for oil.

Conclusion

Let’s step out of the mainstream narrative to give you a better starting point for forecasting USOIL. While the recent flash crash in oil prices was likely triggered because OPEC+ lowered its demand growth forecast, much of the long-term bearish sentiment has already been priced in. With oil prices now sitting at near a three-year low, and no significant new factors suggesting further declines, this appears to be a prime buying opportunity.

However, given the possibility of short-term volatility, it may be wise to consider setting pending buy orders slightly below the current price to capitalize on any further dips before the anticipated rebound. The supply and demand fundamentals indicate that oil is poised to rise again, making now an opportune moment to act.

That said, logical analysis of the markets have been less than reliable in recent months, so keep market sentiment in your sights. If the overall media messaging remains bearish, there might be a further push to lower prices so the institutional investors can get a bargain buy.

Overall, USOIL looks to be a very risky but also very attractive trading opportunity. Be mindful of your equity level and leverage. Make sure your account can weather a storm so you can stay active until a reversal manifests.