Oil Prices Dip, But Analytical Sentiment Is Bullish As Demand Remains Strong

Still, the commodity is viewed as being overbought: File Image/Pixabay

Profit taking and a strong U.S. dollar were mainly responsible for a mild dip in oil prices on Tuesday, following observations in the previous session from some analysts that the new found concern of traders for global tightness had led to the commodity sailing into overbought territory.

Brent settled down 52 cents at $84.91 per barrel, while West Texas Intermediate settled down 43 cents at $81.37 per barrel.

Presumably, the nascent bullishness displayed by investors in July was maintained despite Tuesday's correction, especially in light of the latest figures from the U.S. showing that despite inflation fuel demand rose the highest level since August 2019; also, analysts expressed expectations that U.S. crude and gasoline stockpiles declined last week.

This was fortified by comments from industry insiders such as BP chief Bernard Looney, who said in a conference that oil demand growth would continue into next year and the Organization of the Petroleum Exporting Countries (OPEC) would stay true to its cutback program – both of which would guarantee continued market tightness.

As if to support Looney's predictions, a new survey showed  that OPEC's crude production fell 900,000 barrels per day (bpd) last month, to an average of 27.79 million bpd, the sharpest drop since 2020 when the cartel acted in response to the pandemic lockdowns and quashed demand.

Further on Tuesday, ministries, regulators and the central bank in China pledged to offer more financial support to some small and medium sized businesses in the manufacturing sector, following that country's government vowing to deliver stimulus to prop up a lagging economy.

Small and medium-sized enterprises in key industrial sectors will also be offered appropriate products for foreign exchange hedging, according to a joint statement; this came on the heels of China's top economic planner announcing an extension of loan support tools for small businesses until the end of 2024.

However, Bloomberg warned that "There are reasons to be cautious about a further rally in the short-term: the biggest oil exchange-traded fund posted a record daily outflow recently, as investors take profit from crude's stellar run….oil's climb has also left it close to being technically overbought."

Still, the International Energy Agency predicts an oil shortage of 1.7 million bpd in the second half of this year, and Standard Chartered has predicted a 2.81 million bpd shortfall this month, meaning that despite calls of an overbought market, oil price could continue their upward trajectory.