Low US demand crashes oil prices

Note: This section contains information in English only.
Source: Dukascopy Bank SA
On Wednesday, October 4, crude oil prices declined by more than $5.00. Both US light crude oil and UK Brent crude oil prices have broken their ascending channel patterns. The breaking of the patterns occurred due to US data indicating weak demand for gasoline.

The US Energy Information Administration was the catalyst of the price drop, as it reported that finished motor gasoline demand had decreased to nearly 8 million barrels per day, which is the lowest level since the start of the year. Moreover, JP Morgan has reported that seasonally adjusted US gas consumption has hit a 22 year low.

The decline in demand is attributed to natural disasters as US floods and storm. However, the main cause of the lack of demand most likely is the 30% surge of prices in the third quarter of 2023. Namely, Saudi Arabia and Russia continued to decrease production to manipulate oil prices higher. Due to these efforts prices reached levels where consumers reduce consumption. Some analysts note that the US decline of gas consumption could be the first signal for a global decline in demand for oil.



The price for US light crude oil has passed below the combined support of the 85.00 mark, the 50-day simple moving average and the lower trend line of the channel up pattern that had guided the price since June. However, it has recently stalled in the early 2023 high level zone of 81.20/83.75, which could act as support.

From a technical analysis standpoint the price could recover and face the 85.00 mark and the 50-day SMA as resistance. Above these levels, the late 2022 high and the 2023 high levels could act as resistance at 93.90/95.00.

On the other hand, a move below 81.20 is expected to look for support in the combination of the 200-day SMA and the 77.50 level. Further below, note the 2023 low levels near 65.00.



The UK oil price have experienced a steeper drop, which has broken the ascending pattern and passed through the early 2023 high level zone at 87.10/89.40. The zone had confirmed that it can impact the commodity price as both support and resistance. Moreover, the 50-day simple moving average was left in the 87.10/89.40 price range.

Next target for the ongoing decline appears to be the combination of the 200-day simple moving average and the 82.35/81.75 levels. A move below these levels might slow down near 78.25, before a move to the 2023 low level zone at 70.15/71.70.

Meanwhile, a potential recovery of the commodity's value is expected to face resistance in the 87.10/89.40 zone, the 50-day simple moving average and the 90.00 mark. Higher above, note the 2023 high levels at 94.90/96.00.
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