Oil Price Forecast: Lower as Global Economic Worries Cap Gains

Highlights

• Output cuts extended by Saudi Arabia, Russia, and Algeria.
• Lingering worries about global economic slowdown affect oil prices.
• Market volatility driven by economic indicators and central bank policies.

Overview

On Wednesday, U.S. benchmark West Texas Intermediate crude oil futures decline, erasing some of the gains attained following the announcements made by Saudi Arabia and Russia about their plans to extend and deepen output cuts into August. However, apprehensions regarding a global economic slowdown heavily impacted market sentiment.

Supply Outlook

Saudi Arabia, the world’s biggest crude exporter, on Monday announced an extension of its voluntary output cut of 1 million barrels per day (bpd) to August. Russia and Algeria also volunteered to lower their August output and export levels by 500,000 bpd and 20,000 bpd, respectively. These actions are part of the ongoing efforts by OPEC+ to curb oil production and stabilize prices.

Demand Concerns

Oil prices came under pressure once again due to lingering worries about a slowdown in the global economy. As well as interest rate hikes in the United States and Europe. Investors remained concerned about oil demand as business surveys indicated a slump in global factory activity, primarily due to sluggish demand in China and Europe.

Market Sentiment

The market will likely continue to experience volatility as it focuses on economic indicators in China and the monetary policies implemented by central banks. Traders and analysts are predicting that Brent crude will trade around $75 per barrel. Weak demand and potential interest rate hikes have the potential to influence the trajectory of oil prices, which could trigger an economic downturn and further dampen fuel demand.

Inventory Data

Traders and analysts are eagerly awaiting industry data on U.S. crude and product inventories. The American Petroleum Institute (API) will release the data on Wednesday, while government data will follow on Thursday. U.S. crude inventories are expected to decline by about 1.8 million barrels in the week ending June 30.  This would mark a third consecutive week of declines, according to a Reuters poll of analysts.

Short-Term Forecast

The International Energy Agency has projected a tightening oil market in the second half of 2023. As such, the trajectory of global oil stockpiles will become increasingly relevant alongside OPEC+ supply cuts and macroeconomic headwinds. Traders and analysts will continue to monitor these factors to assess the short-term outlook for oil prices.

In summary, oil prices faced downward pressure as concerns over the global economy persisted, despite the extension of production cuts. While supply cuts have been implemented, worries about oil demand and potential economic downturns have influenced market sentiment. Traders and analysts are closely watching economic indicators, central bank policies, and inventory data to gauge the future trajectory of oil prices.

Technical Analysis

WTI Crude Oil is experiencing a slight decline, with the current price at 70.86, below the previous 4-hour close of 71.01. However, the market remains cautiously bullish as the price is above the 200-4H moving average (70.79) and the 50-4H moving average (69.67). The 14-4H RSI is at 56.00, indicating a neutral market sentiment.

Major support is identified between 67.37 and 68.31, while major resistance lies between 72.75 and 73.55. Traders should monitor price action around the resistance area for potential breakout or reversal signals to determine the market’s future direction.