WTI Oil price started to rebound on Friday from four-month lows, currently trading around $69 per barrel level. This positive movement comes after three consecutive up days, forming a bullish reversal pattern known as Three White Soldiers on the daily chart. Additionally, a bullish Hammer candlestick pattern is being observed on the weekly chart, hinting at a potential short-term recovery rally.
The rebound in Oil prices is being fueled by renewed expectations of a 50 bps interest rate cut by the US Federal Reserve, along with anticipated mortgage rate cuts in China. Lower interest rates reduce the opportunity cost of holding non-interest-paying commodities like Oil, making it more attractive to investors. The cut in Chinese mortgage rates could also boost economic growth in China, which is a key buyer of Oil.
The possibility of a 50 bps cut by the Fed gained traction in the financial media following reports by renowned Fed watchers and a speech by former New York Fed President William Dudley advocating for the larger rate cut. Market reactions to these news have been evident, with the USD seeing losses and the Two-year US Treasury yield dropping.
In addition to the news of interest rate cuts, Hurricane Francine hitting the Gulf of Mexico has also contributed to the current bullish sentiment in the Oil market. Shutdowns in the region have taken out an estimated 730,000 barrels of Oil per day, accounting for 42% of the production in the area. Despite these disruptions, concerns about a negative demand outlook due to China’s weakening economy could limit the upside for Oil prices in the near term.
Both OPEC and the IEA have recently lowered their demand growth forecasts, overshadowing any positive impact from the supply disruptions caused by Hurricane Francine. Data showing a decline in China’s crude Oil imports and tepid US demand are adding to the bearish outlook for Oil prices in 2024. While the current rebound in Oil prices is driven by short-term factors, a sustained rally may face challenges from the broader economic concerns and demand issues in major economies.
