Oil Price Forecast: Challenges Ahead as Demand Weakness Weighs on Prices

Highlights

• WTI oil prices decline on global economic slowdown and weaker demand.
• Rising U.S. fuel stocks and disappointing Chinese exports impact market sentiment.
• Analysts express doubts about OPEC+ actions and optimistic demand growth forecasts.

Overview

WTI oil prices are slightly lower early Thursday amid concerns about global economic slowdown impacting demand. Despite Saudi Arabia’s promised output cuts, market sentiment was overshadowed by apprehensions regarding weaker demand. While the U.S. benchmark saw a modest 1% increase on Wednesday, gains were limited. This was due to rising fuel stocks in the United States and disappointing Chinese export data.

WTI Struggling with Upside Momentum

In recent times, oil prices have been struggling to regain strength. Although supply has tightened, the outlook for demand remains weak. This is resulting in a wide-ranging pattern for oil prices since the beginning of the year. WTI crude faces immediate resistance at the $76.28 level, indicating the challenges it faces in surpassing that mark.

Unexpected Surge in US Fuel Inventories

The unexpected surge in U.S. fuel inventories added to concerns about demand from the world’s largest oil consumer. This is particularly worrisome as the Memorial Day weekend was expected to boost travel, potentially driving up demand. According to the EIA, gasoline inventories climbed by 2.7 million barrels, exceeding analyst expectations of an 880,000 barrel rise. Additionally, distillate stockpiles rose by nearly 5.1 million barrels, surpassing predictions of a 1.3 million barrel increase.

Skepticism Surrounds OPEC+ Actions

Citi analysts are skeptical of OPEC+’s impact, questioning a sustainable price increase. Despite a proposed 1 million barrel per day cut, they believe it won’t provide long-term support to oil prices. Furthermore, both OPEC and the IEA have faced criticism for their overly optimistic demand growth forecasts by year-end.

In a surprising turn of events, U.S. crude inventories witnessed an unexpected decline of 451,000 barrels during the week. Moreover, refiners took advantage of the Memorial Day holiday period. They were operating at their highest level since 2019, and effectively increasing their fuel production.

Short-Term Outlook:  Cautious Sentiment

In summary, WTI oil prices faced a decline on Thursday due to concerns surrounding global economic slowdown and weaker demand. The impact of Saudi Arabia’s output cuts was overshadowed by rising U.S. fuel stocks and disappointing Chinese export data. While supply has tightened, the demand outlook remains weak, keeping oil prices within a wide-ranging pattern. The unexpected surge in U.S. fuel inventories added to concerns about demand from the largest oil consumer. Analysts express doubt about the effectiveness of OPEC+ actions and criticize optimistic demand growth forecasts. Despite an unexpected decrease in U.S. crude inventories, the overall sentiment suggests a cautious market outlook.

Technical Analysis

WTI Oil is trading on the strong side of $69.97 (PIVOT) early Thursday. This indicates that traders are continuing to respect this important support level. A sustained move over this level will indicate the buying is increasing. However, without a fresh catalyst, a breakout to the upside will be a difficult task. If there is enough upside momentum then look for the move to possibly extend into $76.28 (R1) over the near-term.

A sustained move under $69.97 (PIVOT) will signal the return of sellers. This move could trigger an acceleration to the downside. $63.82 (S1) is the next near-term target.

Resistance & Support Levels