Demand-based Concerns Dominate in Oil

Oil prices are set to end the third consecutive week with losses as concerns over the global demand outlook outweigh the risk of war. On the oil supply side, the news flow regarding the continuation of Saudi Arabia and Russia's voluntary production cut is being monitored, while on the demand side, the rising oil stocks data and the macroeconomic dynamics of China, one of the world's largest oil importers, are being monitored. The black gold rally in September, following the decision of Saudi Arabia and Russia to continue cutting oil supply until the end of the year and the Hamas-Israel conflict, has given back all of its gains. WTI oil is trading below 80 USD per barrel for the first time in more than two months, while Brent oil is pushing its strong support at 80 USD levels.

As the possibility of the clashes between Hamas and Israel to spread across the Middle East decreases, market conditions for speculative traders to close their long positions and open new short positions increase the potential for downward pressure on futures prices once again. Speculators, who bought more than 325 million barrels in the futures market from the beginning of July to the end of September with the expectation that voluntary production cuts would drive prices upwards, have been forced to close their long positions while increasing their short positions due to the weakening demand outlook. While this is the case in the futures markets, the weakening in the fundamental dynamics of the oil market leads traders pricing the risk of recession in 2024 to consider every rise as a selling opportunity. In 2024, it is also questionable whether there will be an increase in supply in an environment where demand-driven risks arise.

Even if the Hamas-Israel conflict and the risk of war in the region are ignored, geopolitical risks in the Middle East are always lurking in the corner. Russian and Saudi Arabian officials continue to emphasise their commitment to voluntary supply cuts. One of the most remarkable developments of this week was the Saudi Arabian energy minister's harsh statement that the decline in oil is the manipulation of oil markets by some countries. In Saudi Arabia, one of the world's largest oil producers, the hardening of the rhetoric of the most authoritative name in energy keeps the expectations for the continuation of production cuts alive.

If we make a technical assessment, we see that WTI oil's closing below its 200-day moving average on Wednesday encouraged sellers. After a 3-week decline series, reaction purchases can be expected next week, but unless there is a positive catalyst for the oil market, the rises will remain puny for now. Taking into account the lagged effects of the tight monetary policy implemented by the FED and other major central banks; Traders predicting a recession in 2024 will not hesitate to consider the rises in oil as a selling opportunity. In possible short-term rises, 78.40 USD levels are followed as the first resistance point, while 75.50 USD levels, where the price gap formed in early April, can be followed as a support point. If the selling pressure continues, 84 USD levels, which is a strong support point, will be followed as the next important level.