Oil Price Forecast: Bulls Grappling with US Demand Concerns, China’s Economic Pledge

Highlights

• Concerns over U.S. demand and China’s economic growth commitment impact oil prices.
• Positive drivers exist, but caution remains due to global central banks’ cautious approach.
• Russia’s supply cuts and declining U.S. inventories provide support for oil prices.

Overview

Global oil prices initially opened higher in Asian trade but later edged down as markets assessed various factors impacting the market. The focus was on the balance between concerns over U.S. demand and China’s commitment to bolster economic growth, coupled with tighter Russian supply and declining U.S. inventories.

At 05:54 GMT, Light Crude Oil Futures are trading $75.50, down $0.11 or -0.16%.

There are several positive drivers for oil prices concerning the demand-supply dynamics. While a rebound in WTI prices to around $80 per barrel is anticipated, experts caution against interpreting this as a bullish market due to the cautious approach of global central banks, indicating a retreat in risk appetite.

Fed Decision Could Influence Demand

The Federal Reserve’s likelihood of raising interest rates in July adds to apprehensions about U.S. demand, which could limit the potential gains in oil prices. Economists remain worried that U.S. inflation may not subside rapidly enough, even with rate hikes. A recent Reuters poll indicated that core inflation, excluding food and energy prices, is expected to marginally decrease or remain close to the current level of just under 5% by the end of the year.

Traders Unsure of China’s Commitment to Stimulus

On a positive note, China’s top economic planner has pledged to implement policies aimed at revitalizing and expanding consumption in the second-largest global economy. This commitment has the potential to enhance oil demand, especially considering the current weakness in consumers’ purchasing power. If China’s stimulus measures prove successful, it could significantly tighten oil balances, even if Europe experiences a mild recession.

Russia Plans to Reduce Exports

Looking at the supply side, Russia plans to reduce its oil exports by 2.1 million metric tons in the third quarter, aligned with voluntary export cuts of 500,000 barrels per day expected in August, as per the energy ministry.

API Reports All-the-Board Drawdowns

Support for prices also stems from the expected drawdown in U.S. stocks. The American Petroleum Institute reported a decline in crude oil, gasoline, and distillate inventories last week. Traders are eagerly awaiting confirmation of these stock drawdowns through the U.S. government’s Energy Information Administration data, scheduled for release on Wednesday at 10:30 a.m. EDT (1430 GMT).

Short-Term Outlook:  Cautiously Bullish

Considering the various factors at play, oil prices may still have the potential to break through the upper end of the current market range at $80 per barrel. The coming days will provide further insights into the market’s direction, influenced by supply dynamics, demand considerations, and stock inventory levels.

Technical Analysis

WTI Crude Oil market shows a predominantly bullish sentiment as the current price of $75.48 remains above the 200-4H moving average of $71.54, indicating a positive long-term outlook. The 50-4H moving average stands at $74.70, suggesting a neutral to slightly bullish sentiment in the intermediate term. The 14-4H RSI reading of 55.24 signifies moderately positive momentum.

With the main support area at $69.88 to $70.58 and the main resistance area between $76.92 and $77.99, the current price of $75.48 is positioned to challenge the resistance zone. The bullish outlook could shift to bearish if the current rally falls short of resistance, leading to a subsequent break of the 50-4H moving average.