Oil Price Forecast: Higher as China’s Economic Revival Spurs Optimistic Outlook

Highlights

• WTI crude oil prices rose 1% due to supply tightness and rising Chinese demand.
• OPEC+ meeting to decide whether Saudi Arabia extends its output cut into September.
• Analysts anticipate WTI to reach $80 per barrel on resilient demand and supply cuts.

Overview

US benchmark West Texas Intermediate (WTI) crude oil prices bounced back with a 1% gain on Thursday, recovering from the previous session’s losses. The tight supply situation and optimistic prospects of increased Chinese demand fueled this rally, overshadowing concerns about a potential economic slowdown.

Wednesday’s Weakness Fueled by Weak Inventories Draw, Fed Rate Decision

Yesterday’s dip in oil prices occurred due to two main factors. First, US crude inventories declined, but the drop was less significant than expected. Secondly, the Federal Reserve implemented a quarter-point interest rate hike, leaving the possibility of further increases open.

Traders Eyeing OPEC+ Production Decision

Now, the focus shifts to the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+. They are set to convene for their monthly Joint Ministerial Monitoring Committee meeting next week. The outcome of this meeting will play a crucial role in Saudi Arabia’s decision on whether to extend its voluntary output cut of 1 million barrels per day into September. This move was initially implemented in July, leading to a notable reduction in output.

China Stimulus Boost

However, positive sentiment still prevails in the market, thanks to China’s commitment to rejuvenating its struggling economy. The Chinese authorities have signaled their intent to bolster the economy through support measures, raising hopes for a resurgence in oil demand from the world’s largest crude oil importer.

Market Growing More Optimistic

Despite potential headwinds, such as the European Central Bank’s plan for another interest rate hike, analysts from Commonwealth Bank of Australia remain optimistic. They expect Brent oil futures to climb to $85 per barrel by the fourth quarter, citing the impact of OPEC+ supply cuts and strong demand, which are likely to deplete global oil stockpiles.

WTI Nearing Psychological $80 Level

Looking ahead, the technical and psychological level of $80 per barrel for WTI seems within reach, given the Federal Reserve’s approaching shift in policy and the persistent demand for crude oil amidst a supply-constrained second half of the year.

Potential Headwind:  Russian Crude Sales

On another front, market expectations point to a significant boost in Russia’s oil loadings in September. After implementing steep export cuts during June to August due to peak refinery maintenance, more crude will become available for sales outside the country, as indicated by industry sources and Reuters calculations based on refining data.

Short-Term Outlook:  Cautiously Bullish

In conclusion, while oil prices face uncertainties due to global economic factors and geopolitical events, the potential for WTI to reach the $80 per barrel level remains high. The dynamics of OPEC+ decisions, China’s economic recovery, and global supply-demand balances will continue to shape the future of crude oil prices. Analysts remain hopeful that the resilient demand and supply cuts will ultimately lead to reduced oil stockpiles, supporting a bullish outlook for the commodity.

Technical Analysis

Light Crude Oil futures sentiment is bullish on the 4-hour chart despite a slight dip from the previous close. The price is well above both the 200-4H moving average (72.58) and the 50-4H moving average (76.74), indicating a strong uptrend. The 14-4H RSI at 64.73 suggests moderately bullish momentum.

The market is currently testing the main resistance area between 80.28 and 81.57, while receiving support from the main support area at 73.81 to 74.62. Traders should closely watch for potential breakouts or reversals near the resistance level to gauge future price movements.