WTI below $70, slowing demand caps upside

West Texas Intermediate prices struggled to capitalise on Monday’s modest gains and oscillated in a narrow band, around the $69.70-69.75 area on Tuesday. The US benchmark crude oil remained within striking distance of a nearly three-week low touched last Friday and seems vulnerable to prolonging the recent fall witnessed over the past two weeks or so.

The initial market reaction to an interest rate cut by the People’s Bank of China (PBOC) on Monday turned out to be short-lived amid concerns over slowing demand, which continues to act as a headwind for crude oil prices.

The Organisation of Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) trimmed their global demand forecast last month amid an economic downturn in China – the world’s biggest oil importer.

The fears were further fueled by the warning by IEA head Fatih Birol, saying that weakness in China will continue to weigh on global oil demand in the coming years.

Apart from this, the recent US Dollar upswing to its highest level since early August, triggered by expectations for a less aggressive policy easing by the Federal Reserve, contributes to capping the upside for crude oil prices.

That said, the risk of a further escalation in the Middle East conflict, which could impact supply in the key oil-producing region, offers some support to the black liquid.

This, in turn, warrants some caution for bearish traders and positioning for an extension of the recent sharp retracement slide from the vicinity of the $78.00 mark, or a nearly two-month high touched on October 8.

(Source: OANDA)