On Thursday (December 20), U.S. crude oil prices continued the downward trend from the previous trading day during the Asian session, trading around $69.03 per barrel. Oil prices have closed lower for four consecutive days this week, with the market generally expecting a fifth straight decline, returning to a bearish range. Both fundamental and technical factors suggest that the oil market may face more downward pressure in the short term.
The Federal Reserve's Hawkish Stance Pressures Oil Market Demand Outlook
The Federal Reserve delivered a hawkish signal in its meeting this month, cutting rates less than the market anticipated and highlighting a more cautious approach to future policy adjustments. This stance reduced market expectations for an easy monetary policy, pressuring the demand outlook and hindering oil prices from strengthening. Analysts at commodities broker StoneX noted that the Fed's easing for 2025 was below market expectations, prompting the market to adjust its oil demand forecasts.
Moreover, the U.S. economy's growth rate in the third quarter exceeded expectations, with a larger-than-expected drop in jobless claims. The head of commodities strategy at TD Securities stated that these data indicate the U.S. economy remains robust, with inflation risks persisting, giving the Fed no reason to adopt aggressive easing measures. This economic and policy environment further dampens the upward momentum for oil prices.
Concerns Over Supply Surplus Weigh on Market Confidence
Meanwhile, the market anticipates a significant oil supply surplus next year. Analysts at JPMorgan predict that oil supply will exceed demand by 1.2 million barrels per day in 2025. The expectation of an imbalance in the global oil market weighs on medium-term oil prices. Additionally, the advancement of energy transition policies reduces the demand for oil from the world’s largest importer, adding negative pressure to the oil market.
Geopolitical Issues Heighten Market Uncertainty
On the geopolitical front, escalating military conflicts between Yemeni Houthi forces and Israel further increase market uncertainty. The Houthis recently launched drone and missile attacks on Israeli targets, with Israel retaliating through airstrikes. Although geopolitical conflicts typically drive oil prices upward, the current market focus remains on weak demand and supply surplus, limiting the support geopolitical risks offer to oil prices.
Technical Indicators Suggest Downside Risks
From a technical analysis perspective, U.S. crude oil prices have broken below key moving average support, with the MACD indicator forming a death cross and expanding bearish bars, indicating further downside potential in the short term. The market is currently watching to see if U.S. crude oil can hold the $67 support range. Breaking below this key support level could open further downside space, erasing previous gains and confirming a bearish trend.
Future Outlook
In the short term, this week’s oil price trend will be influenced by the annual rate of the U.S. PCE price index for November. If the data supports the Fed's hawkish stance, oil prices may continue to be pressured. Additionally, divergent stances between the Bank of England and the Bank of Japan on maintaining current interest rate policies, alongside the U.S. president-elect announcing a plan to impose higher tariffs, add uncertainty to the oil market outlook.
Overall, the current oil market faces substantial pressure from both fundamental and technical perspectives. The interplay of supply-demand imbalance, changes in policy expectations, and geopolitical elements makes it difficult for oil prices to break free from a bearish structure in the short term. However, as the market digests these adverse factors, future fundamental changes could still provide new driving directions for the oil market. Investors need to closely monitor supply-demand data as well as the further development of policy and geopolitical risks.
