Oil Price Forecast: Boosted by China’s Economic Stimulus, Supply Cuts

Highlights

• WTI crude oil prices rise due to China’s economic stimulus.
• Saudi Arabia and Russia’s supply cuts support market sentiment.
• WTI on track for fourth consecutive week of gains.

Overview

US West Texas Intermediate (WTI) crude oil prices experienced a boost in Asian trading on Friday, driven by a mix of significant factors influencing the market. Investors and traders were closely analyzing the situation in China, as weak economic data had previously dampened the oil prices throughout the week. The country reported disappointing growth in second-quarter gross domestic product, raising concerns about achieving the government’s annual growth target of 5%. However, hopes emerged as the Chinese government hinted at the possibility of implementing additional economic stimulus measures to bolster their economy. This positive sentiment across commodity markets lifted the outlook for oil prices.

Additionally, supply-related news played a crucial role in supporting the market sentiment. Both Saudi Arabia and Russia, key oil-producing nations, had previously announced supply cuts. Riyadh declared an extension of a voluntary output cut of 1 million barrels per day (bpd) into August, while Moscow disclosed its intention to reduce exports by 500,000 bpd in the same month. These actions signaled a commitment to tightening the supply, which helped in triggering the recent rebound in oil prices.

WTI On Track for Higher Weekly Close

As a result of these developments, WTI was on track to close the week with a 1.1% gain, marking the fourth consecutive week of positive performance for the US benchmarks. This upward trajectory reflects growing confidence among investors and analysts that the expected rate hike by the Federal Reserve in July would likely be the last of its current tightening cycle. Recent data, including lower-than-expected inflation and moderate job growth, further supported this belief.

Notably, the tightening supply situation was evident in the decline of US crude inventories, which the Energy Information Administration (EIA) reported last week. Crude inventories fell due to increased crude exports and higher refinery utilization, reinforcing the positive outlook for the oil market.

Short-Term Outlook:  Cautiously Bullish

In conclusion, the recent rise in US WTI crude oil prices has been influenced by a combination of factors, including hopes of economic stimulus in China, supply cuts from major producers, and optimistic data in the US. The overall sentiment remains bullish, with supportive fundamentals contributing to a favorable short-term forecast. As investors keep a close eye on geopolitical developments and market dynamics, the oil market is expected to continue its positive momentum.

Technical Analysis

Light Crude Oil Futures sentiment is strong as the current 4-hour price edged higher at $76.25, surpassing yesterday’s close of $76.15. The market is displaying a positive short-term outlook, staying above the 50-4H moving average at $75.36. The 200-4H moving average at $71.77 is also solid support. The 14-4H RSI reading of 59.37 indicated balanced-to-upside momentum.

Main support and resistance areas were observed at $73.81 to $74.62 and $76.92 to $77.99, respectively. Traders should carefully monitor the price’s behavior near the main resistance level to assess future market direction.

Trader reaction to the resistance zone at $76.92 to $77.99 is likely to set the near-term tone. This area could stop the rally or trigger a strong upside breakout.