West Texas Intermediate crude oil fell below $78.00, trading at around $77.85, as a truce in Gaza led to expectations of a halt in Houthi shipping attacks in the Red Sea. Geopolitical stability in the region has eased security premiums on oil prices. However, rising oil demand amid increased travel activities to celebrate India’s festivals and Lunar New Year in China is expected to further bolster WTI prices. Moreover, robust US retail sales and the Federal Reserve’s conservative policy on the interest rate cuts have indeed seen the US Dollar gaining strength that is pushing pressure on the USD-denominated oil. They are also watching for China’s next batch of economic data, such as GDP and Retail Sales, for more clues about oil demand, as the world’s second-largest oil consumer continues to recover.

KEY LOOKOUTS

Ceasefire in Gaza and halt to Houthi shipping attacks may reduce the security premium on oil prices.

• Increased travel during India’s festivals and China’s Lunar New Year is anticipated to drive global oil consumption higher in the coming weeks.

• Strong retail sales and the Federal Reserve’s cautious monetary policy impact oil prices by influencing the strength of the US Dollar.

• Key data on GDP, Retail Sales, and Industrial Production will be closely monitored for signs of recovery in the world’s second-largest oil consumer.

West Texas Intermediate (WTI) prices declined to below $78.00 and traded around $77.85, while the easing of geopolitical tensions in the Red Sea lowered security risks. A stoppage of Houthi attacks on shipping and a Gaza ceasefire are alleviating the outlook, thus eliminating some of the risk premium on oil prices. Still, buoyant oil demand, supported by festive travel in India and Lunar New Year in China, should help recover lost ground. Meanwhile, a healthy US retail sales report coupled with the cautious approach of the Federal Reserve regarding cutting interest rates supported the US Dollar, pushing down oil prices. Traders now await China’s GDP, Retail Sales, and Industrial Production data, which might further mold the global oil market dynamics with hints of recovery in the world’s second-largest oil consumer.

WTI prices declined below $78.00 on the back of eased geopolitical tensions in the Red Sea, though increased festive travel demand and expectations for China’s economic recovery may support future price increases.

• WTI crude oil prices traded below $78.00, trading near $77.85, on geopolitical news and eased tensions in the Red Sea.

• The Gaza ceasefire and expected cessation of Houthi shipping attacks decreased the security premium on oil prices.

• India’s festivals, Lunar New Year celebrations in China, are forecasted to augment global oil demand in the upcoming weeks.

• Strong retail sales in December and caution from the Fed on interest rate hikes helped shore up the USD, further propping up pressure on oil in USD terms.

• Chinese data on GDP, Retail Sales, and Industrial Production will be an important factor while gauging recovery in the world’s second-biggest oil consuming nation.

• The other aspect of travel is expected to account for a yearly growth in the consumption of 1.4 million barrels in the oil field.

• Oil trading news closely follows market-based economic responses, geopolitical indicators, and any indications of demand.

WTI has now fallen into the $77.85 trade, as recent geopolitical tensions easing at the Red Sea have sent crude oil slipping below $78.00. The anticipated halt in Houthi shipping attacks, following a ceasefire in Gaza, reduced the security premium on oil prices, signaling improved stability in the region. However, strong festive travel demand in India and the upcoming Lunar New Year in China are expected to support global oil consumption, offsetting the price decline. Analysts estimate an increase of 1.4 million barrels per day year-on-year, fueled by increased travel activities during such events.

WTI Daily Price Chart

Sources: TradingView, Prepared By ELLYANA

Overall economic factors indicate that US retail sales in December were strong and reflect good demand, while the Federal Reserve’s cautious approach to further interest rate cuts has strengthened the US Dollar and put downward pressure on USD-denominated oil prices. Traders are also eyeing China’s forthcoming GDP, Retail Sales, and Industrial Production data, which could be a boon in determining the recovery of the world’s second largest oil consumer. As geopolitical and economic forces continue to define the oil market, WTI prices are likely to remain responsive to the global cues in the short term.

TECHNICAL ANALYSIS

Current spot trading prices for WTI crude stand at around $77.85, which points to bearish momentum as this is unable to stand above the major psychological level at $78.00. Also, on its daily chart, prices are positioned below the 50-day SMA, which signifies that the force is still with the bears, and the relative strength index rests at around 45, and the MACD histogram shows lesser bullish momentum. Support is found at $77.50 and a break below here could be the precursor to further downside to $76.80. On the upside, resistance is still seen near $78.50, with a stronger barrier found at $79.20. A move above here would be needed to confirm a bullish reversal in the short term. Traders should watch for a potential consolidation phase, as geopolitical and economic developments continue to influence market sentiment.

FORECAST

WTI crude oil prices are likely to remain volatile in the near term, influenced by a mix of geopolitical developments, economic data, and seasonal demand trends. The positives, of course are higher expectations on the travel activities that will come during India’s festival season and China’s Lunar New Year, which could propel higher oil consumption, actually making WTI prices approach $79.50 and even $80.00 should this be well supported by demand. More so, positive surprises in China’s upcoming GDP, Retail Sales or Industrial Production would have additional support for prices because China is a huge consumer of crude oil.

Downside risks are still present as geopolitical stabilization in the Red Sea region has lowered the security premium on oil. Should the US Dollar continue to rise, supported by robust retail sales and cautious monetary policy from the Federal Reserve, then USD-denominated oil prices may come under further pressure. Technical support at $77.50 and $76.80 will be critical levels to watch. A breach of these support levels could trigger further declines, with prices potentially testing $75.50 in the short term. Traders should remain vigilant, as market sentiment may shift quickly based on economic and geopolitical developments.