Crude Oil News Today: Supply Fears Trump OPEC+ Cuts

Oil Prices: Bearish Outlook Despite OPEC+ Cuts

Oil prices are facing a downward trend in the near term, despite OPEC+ agreeing to extend production cuts for most members into 2025. Concerns about a potential supply increase later in the year, coupled with signs of weakening demand, are outweighing the positive impact of the production cuts.

At 10:17 GMT, Light Crude Oil futures are trading $72.50, down $1.72 or -2.32%.

Weakening Demand Raises Concerns

Economic data suggests a potential decline in oil demand, putting downward pressure on prices. Indicators like slowing US manufacturing activity and falling construction spending point towards a weaker US economy, which could translate into lower oil consumption. Additionally, the average gasoline price in the United States has been declining, suggesting softening demand during the start of the summer driving season.

The upcoming release of US inventory data is also expected to show a rise in gasoline stockpiles, potentially confirming weaker demand during the Memorial Day weekend. This data will be closely watched by traders for further confirmation of the demand situation.

OPEC+ Supply Increase Looms

While OPEC+ extending production cuts for most members until 2025 offers some short-term support for prices, the decision also includes a mechanism for some members to gradually unwind cuts from October onwards. This raises concerns about a potential supply glut later in the year, which could significantly impact prices.

The current oil price of around $80 per barrel is insufficient for many OPEC+ members to balance their budgets. An increase in supply from these members in the latter part of the year could push prices even lower.

Inventory Levels Add to Bearish Sentiment

Rising oil stocks in developed economies further add to the bearish sentiment surrounding oil prices. These stockpiles act as a buffer against potential supply disruptions, but also indicate that current demand is not strong enough to absorb all the available oil.

Potential for Price Reversal

Although the current market signals point towards a potential retest of the $72 per barrel mark, there are some factors that could reverse the trend. OPEC+ has indicated that it could pause or even reverse the unwinding of cuts if demand strengthens. News of such a decision could provide a temporary price boost.

Trading Strategies for Bearish Market

Traders looking to capitalize on the expected decline in oil prices could consider shorting oil futures contracts. However, it’s important to closely monitor economic data releases and inventory reports for confirmation of weakening demand. Additionally, staying updated on OPEC+ news regarding the potential pause or reversal of production cut unwinding is crucial for making informed trading decisions.

This bearish outlook on oil prices is based on the combination of weakening demand signals, the potential for increased OPEC+ supply later in the year, and rising oil inventories. While there’s always the possibility of unforeseen events impacting the market, traders should carefully consider these factors when making their oil trading decisions.

Technical Analysis

Light crude oil futures are plunging for a second session on Tuesday after decisively crossing to the weakside of its 200-day moving average. This long-term trend indicator is currently at $78.15, making it resistance.

Should the downside momentum continue then traders should anticipate a near-term break into the $69.64 to $66.19 support zone.