In August, Brent and WTI benchmarks fell to their lowest levels since October amid growing concerns about global demand despite steady production by OPEC+. An outbreak of COVID-19, the selling of strategic oil reserves, and an economic slowdown in China, as well as the strengthening of the US dollar, pushed the most heavily traded grades down by 15% from their July highs. At the same time, the efficient containment of the pandemic by Beijing, Jerome Powell's dovish rhetoric, and Hurricane Ida helped crude to partially recover.

According to Bloomberg experts, despite issues related to global demand for oil, OPEC+ will unlikely refrain from increasing supply by 400,000 barrels per day during a meeting scheduled for September 1. The cartel seems to be fine with Brent trading at $70-75 per barrel, as well as current backwardation in the market. It has already offset 45% of its unprecedented production cuts in 2020 and continues to go ahead with its plans. A gradual restoration of production in the Gulf of Mexico makes traders focus on demand.

Monthly dynamic of crude oil price

On August 31, both Brent and WTI tumbled amid a decrease in demand for oil among refineries triggered by unprecedented power outages in Louisiana. China's disappointing business activity results were also among the factors contributing to the plunge. China's manufacturing PMI approached 50, the dividing line between contraction and expansion. At the same time, the services PMI declined below it. All this increases the risks of an economic slowdown in China in the last six months of the year. The country is the largest oil consumer, which has crucial importance for the market.

A decrease in China's PMI is highly likely to be associated with the COVID-19 outbreak that was quickly taken under control by the government. Therefore, the index may well increase in the short term. At the same time, the People's Bank of China is expected to support the economy by reducing the reserve requirement ratio as the country's fight against carbon emissions leads to a drop in GDP.

The upcoming US labor market report for August will also be reflected in the price of oil. Strong data is likely to boost the greenback and affect oil quotes. Conversely, disappointing results may increase risk appetite and support oil.

In terms of technical analysis, the Wolfe Waves pattern is still developing. The attempt to break resistance 2-4 failed. The volume of long positions opened from the $70.5 level should be increased if the price bar closes, or if the price tests the $71.5 level or breaks resistance at $73.5.

Brent, daily chart