Oil Price Forecast: Edging Higher as US Fuel Demand Boosts Market Confidence

Oil Highlights

• Positive US fuel demand data drives oil price recovery.
• Concerns over US interest rate hike impact oil prices.
• Analysts forecast oil prices to rally as summer driving season approaches.

Oil Overview

Oil prices rose on Thursday, recovering from previous losses, thanks to positive fuel demand data from the United States, the world’s top oil consumer. The prices were supported by a sharper than expected drop in U.S. gasoline inventories, indicating stronger demand for transport fuels.

At 09:35 GMT, WTI Oil is trading $73.32, up $0.46 or +0.62%. On Wednesday, the United States Oil Fund ETF (USO) settled at $64.39, down $0.48 or -0.74%.

Conversely, oil prices fell by over a dollar a barrel on Wednesday, ending a three-day rally, due to concerns that the U.S. Federal Reserve might increase interest rates further. The rise in U.S. consumer prices in April heightened the likelihood of higher interest rates, which has been a factor weighing on oil prices recently.

Traders have been worried about a potential recession, driven by rising global interest rates and fears about economic growth, including the banking crisis and the typical seasonal weakness in energy demand during spring.

US Oil Inventories and Global Oil Demand

U.S. crude oil inventories increased by approximately 3 million barrels last week, primarily due to a release from national reserves and a drop in exports, as reported by the Energy Information Administration. This unexpected build in crude inventories, confirmed by industry data, affected prices during Wednesday’s session.

Additionally, concerns about global oil demand were exacerbated by lower crude imports and softer export growth in China. However, the decline in crude prices was somewhat limited by a surge in U.S. gasoline demand ahead of the summer driving season.

Moreover, U.S. gasoline inventories experienced a significant decrease of 3.2 million barrels, surpassing the forecasted draw, while distillate stocks also declined. U.S. jet fuel demand rose to its highest level since December 2019.

Forecast and Debt Ceiling Talks

Analysts forecast oil prices to range from $75-95 during 2023, based on fundamental supply and demand dynamics. They anticipate a rally as the summer driving season approaches.

Meanwhile, investors are closely monitoring talks on raising the U.S. government’s $31.4 trillion debt ceiling, which commenced on Wednesday. Republicans are emphasizing the need for spending cuts, leading to concerns about a potential default.

As a result, the cost of insuring exposure to U.S. government debt reached record highs, causing apprehension on Wall Street. However, once a compromise is reached, analysts believe that investors will be encouraged to act, leading to a rally in stocks and providing support for oil.

Inflation data showing a slight easing could also provide cover for the Federal Reserve to pause further interest rate increases, which can have an impact on oil demand.

Technical Analysis

WTI Oil traders are trying to establish new higher support at $72.57 (S1). If successful, it could drive prices into the pivot at $78.02 over the near-term.

On the downside, a failure to hold $72.57 (S1) will be a sign of weakness. This could be the trigger point for an acceleration into (S2) at $68.49.

Essentially, controlling the near-term direction is $72.57 (S1).

Resistance & Support Levels