Oil retreats further, weighed by concerns over Chinese demand

• Oil price slips lower for a second consecutive trading day. 
• Prices retreat as traders focus on Chinese demand fears and efforts to get a ceasefire deal in Gaza.  
• The US Dollar Index eases further after hedge funds go long on the Japanese Yen, which appreciates against the Greenback. 

Oil retreats for a second consecutive session as some tail risks move to the forefront on Monday. Traders are fearing weaker demand again from Oil importer China, weighing on overall market sentiment. Meanwhile, all eyes are on the Middle East, where a successful outcome of Gaza ceasefire talks could reduce supply risks substantially, according to Reuters. With two major risk premium events being priced out, some more easing in Crude prices might be at hand. 

The US Dollar Index (DXY), which tracks the performance of the US Dollar against six major currencies, is feeling the heat from the Japanese Yen. Markets got rattled on Friday after the Commodity Futures Trading Commission (CFTC) reported that hedge funds were back to being net long on the Japanese Yen (JPY) for the first time since 2021. This weighed on the Greenback and spilled over into the DXY’s performance, which flirts with a break below 102 ahead of the Federal Reserve’s Jackson Hole Symposium later this week. 

At the time of writing, Crude Oil (WTI) trades at $75.03 and Brent Crude at $78.71

Oil news and market movers: Easing demand from China

• Bloomberg reports that Iran has jacked up the premium on its light crude prices by $2.35 per barrel over the benchmark Oman-Dubai pricing for September sales to Asia. The move is rather strange taking into account that markets are concerned about a slowdown from China.
• The weekly Commodity Futures Trading Commission (CFTC) data revealed that hedge funds are still net long on Crude Oil even though price action has not been outperforming these past few weeks. Bloomberg reports that hedge funds might be compelled to cut their stake if crude does not gain ground this week, adding to more selling pressure.
• Oil output in Libya has increased by 300,000 barrels per day with the Waha Oil production back to normal levels after maintenance, Reuters reports. 
• Headline risk is to be considered with ceasefire talks on Gaza taking place in the coming days. 

Oil Technical Analysis: That rejection has more room to go

A big warning already appeared last week on charts after Oil prices were unable to cross over the important 100-day Simple Moving Average (SMA) around $78.45, a key technical level. With that rejection unfolding, the Relative Strength Index (RSI) in the daily chart is still trading fairly in the middle of its range, not looking oversold. This could mean more downside to come, particularly when hedge funds start to cut their stake, triggering a further slide towards $72.00 or lower. 

On the upside, it becomes very difficult to be bullish with a lot of resistance levels nearby. The first element to look out for is the pivotal $75.27. Next up is the double level at $77.65, which aligns with both a descending trendline and the 200-day Simple Moving Average (SMA). In case bulls are able to break above it, the 100-day SMA at $78.45 could trigger another rejection as it did last week.  

On the downside, the low from August 5 at $71.17 is the best level for a bounce. It might not be bad to start considering levels below $70.00 in case ceasefire talks reach a breakthrough and hedge funds start selling their speculative stake in Oil contracts. The $68.00 big figure level is the first level to watch followed by $67.11, which is the lowest point from the triple bottom seen back in June 2023. 

US WTI Crude Oil: Daily Chart