Crude Heavily Lower Ahead of EIA & US PMIs

Crude Slumps on China ConcernsCrude oil has taken a further turn lower this week. After a sustained rally over July which saw prices hitting fresh highs for the year earlier this month, crude futures have now shed around 7% from those YTD highs. Concerns over the economic outlook in China have been a major headwind for oil traders recently. With financial and property sector risks coming in alongside continued data weakness, the demand outlook in China has fallen materially, particularly given that Chinese authorities have so far only taken very limited actions.New Oil Supply in FocusThis week, the main downside driver for crude has been news of possible reopening of a major oil site in Iraq. If confirmed, this would bring around 500k barrels per day back online. This would strike a major blow to the recent OPEC+ production cuts and, depending on how far oil prices fall, might well see focus shifting back to the risk of fresh OPEC+ production cuts near-term.EIA Inventories & US PMIs DueLooking ahead today, the focus will be on the latest EIA inventories release which is expected to confirm a fresh drawdown in oil stocks. Given the backdrop, however, it would likely take a meaningful downside surprise to prop oil up. We also have the latest US PMI readings to watch. If any fresh downside is seen (as we saw with the eurozone and UK today), this will likely weigh heavily on oil prices, further hurting the demand outlook.Technical ViewsCrudeThe failure above the 85 level has seen the market breaking back below the 82.59 level. Price is now turning sharply lower and with momentum studies bearish, the focus is on a further push down towards 72.61 next. Longer term, bulls will need to see 72.61 hold if any further upside is to materialise. Below there, the break above 82.59 starts to look like a false breakout and reversal.