WTI crude tests $66 support as supply growth caps rebound

WTI crude hovered near $69 a barrel Tuesday, with the rebound from last week's lows capped by rising OPEC+ supply and signs of slowing demand from China, the world's largest crude importer.

"The market has returned to levels seen before the Iran war, indicating traders are no longer pricing in a significant geopolitical premium," said Muhammad Umair, a financial analyst and founder of Gold Predictors. "But the supply outlook is now the dominant factor."

The UAE raised production above 3.8 million barrels a day in June, the highest since April 2020, while OPEC+ agreed to ramp up output targets from August. Saudi Arabia lowered its official selling price for Arab Light crude to Asia, reflecting intensifying competition for buyers in a softening demand environment. Brent crude settled at $73.30, with both benchmarks struggling to hold gains after last week's selloff.

A break below $66 in WTI would open the path toward $60 to $55, levels not sustained since the pandemic-era collapse. A move above $80 would signal a reversal, though the bearish supply-demand setup makes that scenario unlikely without a major demand catalyst.

The supply overhang comes as demand signals deteriorate across the two largest consuming regions. China's economic recovery has underwhelmed, with crude imports slowing as industrial output and refining activity lose momentum. Saudi Arabia's price cut to Asia — its largest market — shows growing competition among producers for a shrinking pool of buyers. The discount on Arab Light crude suggests the kingdom sees weaker demand ahead and is moving to protect market share rather than defend prices.

The demand picture is also weakening in the US. August nonfarm payrolls added just 22,000 jobs, far below the 75,000 consensus estimate, while the unemployment rate rose to 4.3 percent. Temporary employment fell to 2.5 million, a level historically associated with recessions. The ISM Services PMI held at 52 percent, but its prices subindex surged to 69.2 percent, showing persistent inflation that complicates the Federal Reserve's policy path. The Fed now faces a dilemma: cutting rates to support a slowing economy could reignite inflation, while holding rates high could deepen the slowdown. According to the CME FedWatch tool, markets price an 89 percent probability of a rate cut in September.

Supply Dynamics Weigh on Sentiment

The OPEC+ decision to unwind production cuts from August adds another layer of pressure. Saudi Arabia's potential reversal of its additional 1.65 million barrels per day of voluntary cuts — if executed — would flood a market already struggling to absorb existing supply. The UAE's June output of 3.8 million barrels per day, its highest in more than five years, shows the growing divergence within the alliance. The last time the UAE pumped at this level was April 2020, when the Saudi-Russia price war sent crude prices briefly negative.

Technical Levels Point Lower

WTI's daily chart shows the price consolidating above the $66 support level after failing to hold higher ground. The relative strength index is in oversold territory, suggesting a potential bounce, but the broader trend remains bearish. A break below $66 would target the $60 to $55 range, with the monthly chart showing a breakdown from a symmetrical triangle pattern that points to further downside. Brent crude faces similar pressure, with a break below $65 opening the door to $60.

The selloff in crude has rippled through related markets. The 10-year US Treasury yield fell to 4.09 percent, approaching the key 4 percent support level, as lower energy prices eased inflation expectations. The US dollar index weakened, providing some support for commodity prices, though not enough to reverse the bearish momentum in crude.

The last time WTI traded below $60 for an extended period was during the 2020 pandemic, when demand collapsed and storage filled. While current conditions are less severe, the combination of rising supply and slowing demand creates a similar risk profile. The previous OPEC+ output increase in 2020 triggered a price war that sent Brent below $30 before the alliance reversed course. This time, the group's discipline will be tested as members push for higher output quotas.

This article is for informational purposes only and does not constitute investment advice.