Crude oil price is set for its second consecutive week of losses as demand concerns weigh on the market. For the first time in about 7 months, the benchmark for global oil – Brent futures – is trading below the psychologically crucial level of $90. Earlier on Friday, it hit an intraday low of $87.34; its lowest level since 25th January.
Bearish demand outlook
Crude oil price rebounded on Friday after hitting an 8-month low on Thursday. The market appears to be looking past the surprise build of US oil inventories in the week that ended on 2nd September. On Wednesday, the Energy Information Administration (EIA) reported a crude oil build of 8.844 million barrels. Notably, this is the largest increase in 5 months.
Besides, the benchmark RBOB gasoline futures have been trading below the previously steady support zone of $2.50 per gallon since the beginning of September. The ending of the driving season and slow economic growth are largely behind the bearish demand outlook.
Just like in the US, the economic slowdown in China is also a key bearish driver for crude oil price. The Middle Kingdom is the leading importer and second-largest consumer of the commodity after the US.
Earlier in the week, the released imports data showed a subtle increase of 0.3%. The figure missed the economists’ expectations of 1.1% and prior month’s 2.3%. Coronavirus-related losses have continued to weigh on the Chinese economy; an aspect reflected in the crude oil demand outlook.
Where to next?
In the ensuing sessions, $95 will likely remain a key resistance zone for crude oil price as the US dollar adds to its bearish drivers. Indeed, a strong US dollar and expectations that the Fed will approve another super-sized rate hike in September have been weighing on the commodity.
In the coming week, the strength of the currency will be tested by the expected US CPI data. Similar to other dollar-priced assets, crude oil price tends to move inversely to the value of the greenback.