Oil Price Forecast: Lower as U.S. Crude Inventories Rise, Fed Rate Hike Looms

Highlights

• US crude stocks increase, Fed rate hike expected.
• Balancing global supply and economic slowdown fears.
• Saudi Arabia’s policy decisions crucial for market outlook.

Overview

US benchmark West Texas Intermediate crude oil prices eased off three-month highs on Wednesday amid concerns over rising U.S. crude inventories and cautiousness surrounding an expected Federal Reserve rate hike. The American Petroleum Institute (API) late Tuesday revealed a 1.32 million barrel increase in U.S. crude stocks, while analysts predicted a 2.3 million barrel drawdown, awaiting confirmation from the US Energy Information Administration (EIA) later in the day.

Uncertainty Over Tightening Supply, Economic Slowdown

Investors remained in a state of uncertainty as they grappled with a delicate balance between tightening global supply and fears of a global economic slowdown, potentially impacting oil demand. Moreover, apprehension surrounded the outcome of the Federal Reserve’s policy meeting, with most expecting a 25 basis-point rate hike.

Stronger Dollar Weighs

The strengthening U.S. dollar added to concerns, making commodities like oil more expensive for buyers. Despite hitting their highest levels since April 19, crude prices slid, driven by doubts about China’s economic policy support and uncertainties surrounding actual policies being implemented.

Saudi Arabia Speculation

Attention also turned to Saudi Arabia, a major oil producer, and speculations whether they would extend voluntary production cuts into September. How they manage these expectations will be critical, as any aggressive unwinding of cuts could exert downward pressure on the market.

In May, Saudi oil exports plummeted nearly 40% compared to the previous year, as per the latest government data. This development added to the complexity of the oil market situation.

Fed Rate Decision, EIA Report Set the Tone

As the Federal Reserve’s rate decision looms and supply-demand dynamics continue to evolve, investors remain watchful. The outcome of the Fed meeting, the U.S. government’s inventory data, and policy moves from China and Saudi Arabia will play pivotal roles in shaping short-term sentiments in the oil market.

In conclusion, oil prices retreated from recent highs amid mixed signals in the market. The tug-of-war between supply concerns and economic uncertainties has kept investors cautious. All eyes are now on the Federal Reserve’s decision. Additonally, how major players like China and Saudi Arabia will impact the oil market’s direction in the near term.

Technical Analysis

WTI Crude Oil is stabilizing on the 4-hour chart after its current price rose to 79.27, surpassing the previous close. The 200-4H moving average at 72.37 and the 50-4H moving average at 76.46 further supported the positive momentum. With the 14-4H RSI standing at 66.60, indicating bullish strength, the market remained in an upward trend. However, it is coming down after reaching overbought territory on Tuesday.

The price broke through the main resistance area of 77.93 to 79.27, solidifying the bullish sentiment. Traders are now trying to turn the former resistance area into new support. As the price remains above key moving averages, traders should closely monitor the RSI for potential overbought signals in the future.