Oil Price Forecast: Look to End Losing Streak Amid China’s Growing Demand

Highlights

• China’s rising oil demand supports WTI crude oil prices.
• Weaker US Dollar contributes to increased affordability and demand for oil.
• Global economic uncertainties and higher interest rates pose challenges to the oil market.

Overview

US West Texas Intermediate (WTI) crude oil prices are poised to break a two-week losing streak, although they are currently showing a slight decline on Friday. The market is finding support from optimism surrounding China, the leading importer of crude oil, which is expected to drive higher energy demand. Additionally, the recent movement in the US Dollar has introduced volatility into the oil market since Wednesday’s session. On Thursday, the US benchmark experienced a notable surge of around 3%.

Record-high Chinese Oil Refinery Throughput Fuels Demand

Chinese data released on Thursday revealed a significant 15.4% increase in oil refinery throughput in May. This compares to the previous year, marking the second-highest level on record. Kuwait Petroleum Corp’s CEO expressed confidence in continued growth of Chinese oil demand throughout the second half of the year. This positive outlook from China reinforces expectations for rising demand.

Weaker US Dollar Boosts Oil Demand

Meanwhile, in the United States, retail sales unexpectedly rose in May, and jobless claims exceeded expectations last week. As a result, the US Dollar weakened, reaching a five-week low against a basket of other currencies. A weaker Dollar has the potential to increase demand for oil as it makes it more affordable for holders of other currencies.

OPEC+ Output Cuts Bolster Oil Prices

Analysts anticipate that the voluntary crude output cuts implemented by the OPEC, its allies, and Saudi Arabia will further support oil prices. OPEC and its allies implemented the cuts in May, while Saudi Arabia plans to continue reducing its output in July.

Economic Concerns Could Dampen Market Sentiment

Despite these positive factors, market sentiment is overshadowed by concerns about the global economic outlook. China’s industrial output and retail sales growth in May fell short of expectations, raising apprehensions about the strength of the economic recovery. Furthermore, the recent aggressive rate hikes and interest rate increase by the European Central Bank (ECB) to a 22-year high, along with indications from the US Federal Reserve of a potential half percentage point increase by year-end, add to the uncertain economic landscape.

Interest Rate Risks Capping Gains

Higher interest rates could translate to increased borrowing costs for consumers, potentially slowing down economic growth and reducing oil demand. Crude oil prices are grappling with finding solid support as they navigate through the vulnerabilities and potential shocks of the global growth outlook.

Short-Term Forecast:  Bulls Banking on Increasing China Demand

While US WTI crude oil prices are currently experiencing a slight decline, they remain on track to end their two-week losing streak. Optimism surrounding China’s increasing oil demand and the impact of a weaker US Dollar are providing support. However, concerns about the global economic outlook and the potential consequences of higher interest rates pose challenges to the oil market in the short term.

Technical Analysis

WTI Oil is edging lower on Friday, while trading on the bullish side of the $69.97 (PIVOT). This level is support.

Retaking $69.97 could stabilize the market after a steep sell-off earlier in the week. If the move is able to generate enough upside momentum then look for a near-term surge into $73.26, followed by $76.28.

The inability to sustain a rally over $69.97 will indicate that sellers are still in control. This could create the downside momentum needed to extend the selling into the next major target at $63.82 (S1) over the near-term.

 

Resistance & Support Levels