Oil Price Forecast: Futures Extend Decline Amidst Demand Concerns

Highlights

• U.S. crude oil futures decline, signaling a weekly drop of over 3%.
• Concerns over demand arise from interest rate hikes and a strong dollar.
• Surprise drawdown in crude stocks provides some support for a more bullish perspective.

Overview

U.S. crude oil futures extended their decline for a second consecutive session on Friday, signaling a weekly drop of over 3% amidst concerns over demand. The fears stemmed from a higher-than-expected interest rate hike by the BOE.  In addition to warnings of impending rate increases in the United States.

Central Bank Actions Spark Economic Slowdown Concerns

These actions by central banks, along with a strong US dollar, have sparked worries of a potential economic slowdown. This could dampen fuel consumption. A stronger dollar makes oil more expensive for holders of other currencies, thus reducing demand. As the market awaits the release of Purchasing Managers Indexes (PMIs) worldwide, manufacturing activity and demand trends will come into focus.

Surprise Drawdown in Crude Stocks

Meanwhile, the Energy Information Administration (EIA) reported a surprise drawdown in U.S. crude stocks, aided by robust export demand and lower imports. However, gasoline and distillate inventories experienced increases. Crude inventories declined by 3.8 million barrels, surpassing expectations of a 0.3 million-barrel rise.

Gasoline Stocks Rise in Energy Report

Stocks at the Cushing, Oklahoma, delivery hub also fell. Refinery crude runs and utilization rates dropped, indicating a decrease in processing activity. On the other hand, gasoline stocks rose by 0.5 million barrels, while distillate stockpiles, including diesel and heating oil, increased by 0.4 million barrels.

Rate Hikes Cast Uncertainty Over Fuel Demand

Fed Chair Jerome Powell emphasized a cautious approach to future interest rate adjustments. He acknowledged their potential impact on borrowing costs for businesses and consumers. Such increases could impede economic growth and curtail oil demand. The apprehension surrounding major central banks’ rate hikes has cast uncertainty over the fuel demand outlook for the remainder of the year. Energy traders are concerned that these measures may hinder economic expansion in the second half of the year.

Short-Term Forecast:  Bearish

The recent decline in U.S. crude oil futures, coupled with concerns over interest rate hikes and a stronger dollar impacting demand, paints a somewhat bearish outlook for the near term. However, the surprise drawdown in crude stocks and strong export demand provide some support for a more bullish perspective. Additionally, the cautious stance of the Federal Reserve regarding future rate adjustments may alleviate fears of a significant slowdown in economic growth and fuel consumption. While uncertainties remain, there are potential factors that could contribute to a more balanced or bullish sentiment in the coming weeks.

Technical Analysis

WTI Crude Oil is week as the current 4-hour price of 68.67 fell below the previous 4-hour close of 69.19. The market sentiment is bearish as the price remains below the 200-4H moving average of 71.29 and the 50-4H moving average of 70.41. The 14-4H RSI of 34.33 indicates the market is appproaching oversold territory.

Trading near the main support area ranging from 68.31 to 67.37. This suggests a bearish bias, while the main resistance area between 72.75 and 73.55 signifies a challenge to rallies. Based on these indicators, the market sentiment for WTI Crude Oil is currently bearish.