Oil Price Forecast: Fed Meeting, China Demand, Russian Supply Worries Weigh

Highlights

• Oil prices decline ahead of the Federal Reserve meeting.
• Concerns over China’s fuel demand growth and increasing Russian supply add pressure.
• Bearish asset allocators currently dominate, impacting oil prices.

Overview

Oil prices declined on Monday as investors eagerly awaited the U.S. Federal Reserve meeting to gauge the central bank’s stance on interest rate hikes. Concerns about China’s fuel demand growth and increasing Russian crude supply added further pressure to the market, resulting in both benchmarks experiencing a second consecutive weekly decline. The disappointing economic data from China raised doubts about demand growth in the world’s largest crude importer, offsetting the positive impact of Saudi Arabia’s commitment to cutting production by 1 million barrels per day in July.

At 05:30 GMT, WTI Oil is trading $69.329, down $0.644 or -0.92%.

Bearish Allocators vs. Bullish Speculators

Oil prices face a battle between bearish allocators and bullish speculators. Bearish allocators currently dominate as prices struggle until Fed eases money supply. Fed rate hikes strengthen dollar, impacting oil prices negatively.

Market Expects Fed Rate Pause, Possible Tightening

Market participants widely expect the U.S. central bank to keep interest rates unchanged following its two-day monetary policy meeting, which concludes on Wednesday. However, the possibility of further policy tightening remains if growth fails to slow and funding pressures in the banking system persist, which could pose downside risks.

Steady Russian Supply Defies Sanctions

Despite Saudi Arabia’s production cuts, Russian oil supply has remained steady despite sanctions. Russian oil exports to China and India continue to grow, defying the European Union’s embargo and the Group of Seven’s price cap mechanism.

Goldman Sachs Lowers Oil Price Forecasts

Goldman Sachs recently revised its oil price forecasts, lowering them due to higher-than-expected supplies from Russia and Iran. The bank also raised its 2024 supply forecasts for Russia, Iran, and Venezuela by a total of 800,000 barrels per day. Goldman Sachs’ updated December crude price forecast now stands at $86 per barrel for Brent, down from $95, and at $81 per barrel for WTI, down from $89.

Short-Term Outlook:  Bearish Amid Fed Meeting, Supply Concerns

In summary, oil prices faced downward pressure as investors awaited the outcome of the Federal Reserve meeting and concerns about China’s fuel demand growth and rising Russian crude supply persisted. The clash between bearish asset allocators and bullish oil speculators continues, with bearish allocators currently holding the upper hand. The Federal Reserve’s rate hikes have strengthened the U.S. dollar, impacting oil prices negatively.

While market participants expect unchanged interest rates, further policy tightening remains a possibility. On the supply side, Saudi Arabia’s production cuts have been countered by resilient Russian supply, and despite sanctions, Russian oil exports to China and India have increased. Goldman Sachs adjusted its oil price forecasts downward due to higher supplies from Russia and Iran.

Technical Analysis

WTI Oil is trading on the weakside of $69.97 (PIVOT), putting it in a bearish position.

A sustained move under $69.97 will indicate the selling pressure is increasing. A trade through the main bottom at $67.01 could trigger an acceleration to the downside with the next major target $63.82 (S1).

Retaking $69.97 will stabilize the market. While a trade through $73.26 will shift momentum to the upside.

Resistance & Support Levels