By Rania Gule

WTI crude oil is trading at a steady level of around $70.74 this Tuesday. In my opinion, this price stability comes at a crucial time, as traders are awaiting the Federal Reserve’s final decision on interest rates for this year, which will significantly impact global markets, including oil markets. Given the various economic and geopolitical factors influencing oil prices, this period is pivotal for the near future of the market.

One of the key factors that could limit the potential gains for crude oil is concerns about global demand growth, especially in China, the world’s largest oil importer. Recent data revealed that China’s retail sales in November grew slower than expected, raising concerns about a slowdown in consumer spending in the country. Retail sales only increased by 3% year-over-year, lower than the previous forecast of 4.6%. This data comes at a sensitive time for the markets, prompting traders to question China’s future ability to boost crude oil demand.

The decision from the Federal Reserve also plays an important role in determining the future direction of oil prices. It is expected that the Fed will announce a 25 basis point rate cut, which could strengthen the U.S. dollar. Since oil is priced in U.S. dollars, any strong movement in the currency could reduce oil’s appeal as an investment, putting additional pressure on its prices. From this perspective, traders may adopt a cautious stance in anticipation of the Fed’s decision, potentially leading them to avoid risk and refrain from opening new buy positions in oil, increasing the likelihood of continued price stability or even a decline.

Geopolitical factors cannot be overlooked, as they might have an equally, if not more, significant impact. Sanctions on oil producers like Russia and Iran could help support oil prices by restricting crude supply in global markets. This is especially true in light of recent comments from U.S. Treasury Secretary Janet Yellen regarding the possibility of imposing further sanctions on Chinese banks and oil tankers that help fund Russia’s war in Ukraine. These geopolitical risks could be the factor that prevents crude oil from falling to lower levels, as any disruption in supply could temporarily push prices up, especially amid market concerns over global supply shortages.

This comes at a time when OPEC+ policy has emerged as a critical element in supporting the market. The organization has decided to delay the voluntary production increase by key members for another quarter, reflecting its efforts to maintain price stability. While this step may seem like a temporary measure, it sends a clear message from OPEC+ that ensuring the stability of oil prices is its top priority at this stage. Maintaining unity within the cartel in the long term may prove challenging, but for now, this delay serves as a defensive action against market volatility.

U.S. production, however, remains a major factor in shaping the global oil market. U.S. oil production reached a record high of 13.63 million barrels per day, reflecting the country’s ability to meet both domestic and global demand. Although the number of active drilling rigs in the U.S. is only 482, significantly lower than the peaks of previous cycles, production remains high, putting more pressure on OPEC+ and other producers to maintain stable prices. Restoring market share for the U.S. may be more politically challenging than in other regions such as Latin America or Southeast Asia, suggesting that the U.S. may be in direct competition with other OPEC members, adding more complexity to producer relations.

Looking at recent price movements, it appears that crude oil has tested the $70 level several times over the past three months without managing to break it on a sustainable basis. This reflects an ongoing bearish trend, as the market has not been able to rise above key long-term moving averages like the 50-week and 200-week moving averages. However, this does not necessarily mean that the bearish trend will continue, as markets are influenced by many dynamic factors, and prices could reverse upward if current obstacles are overcome.

In conclusion, I see oil markets grappling with a complex mix of economic and geopolitical factors shaping the future path of crude oil prices. With the Fed’s interest rate decision on the horizon, the short term may see price fluctuations due to these factors. Despite the presence of some downside risks, geopolitical factors such as sanctions on Russia and Iran, along with support from OPEC+, may prevent prices from falling sharply. Ultimately, the oil may be awaiting greater stability in the upcoming year, especially if markets manage to navigate these challenges.

Technical Analysis of Crude Oil (USOIL – WTI) Prices:

Crude oil prices are facing significant challenges after halting their recent surge, which had exceeded 5%. The prices saw a decline following the release of Chinese retail data that showed slower-than-expected growth. This data raised concerns about the future of oil demand next year, especially given China’s significant role in boosting global oil consumption. If China’s economic growth continues to slow down, the 2025 outlook could see a further decline in demand, especially if President-elect Donald Trump imposes additional tariffs, which could negatively affect the Chinese economy and, in turn, oil consumption.

Crude Oil – USOIL – WTI – MT4   Prices Chart -XS.com

From a technical perspective, prices are facing strong resistance at the $71.46 level, which also coincides with the 100-day simple moving average (SMA) at $71.08. This adds selling pressure as prices stabilize near these levels, indicating that the price may struggle to break above them for now. If oil manages to surpass this level, it could rise towards the next key level at $75.27, which represents a potential target for continued upward momentum.

On the downside, the $70.11 level, which aligns with the 55-day simple moving average, is the first major test for prices in case of a pullback. It is still uncertain whether this level will hold, as breaking below it could push prices toward lower support levels. If prices drop below this level, the $67.12 level, which provided strong support in May and June of last year, will be the next support level that could provide some stability for prices.

If the downward trend continues and oil falls below the major support at $67.12, the $64.75 level, representing the lowest price since the start of 2024, will be the next target. Should a further decline occur, the $64.38 level, the lowest level in 2023, will be the next support point to watch as a strong demand zone.

Support Levels: 69.96 – 69.76 – 69.30

Resistance Levels: 70.60 – 70.95 – 71.20

• Gule is Senior Market Analyst at XS.com