Oil Price Forecast: Lower on Rate Hike Concerns but Unexpected Draw Underpins

Highlights

• WTI crude oil futures decline on rate hike concerns while an unexpected draw in stockpiles boosts sentiment.
• Traders eagerly awaits U.S. EIA inventory data with the unexpected draw signaling potential bullish demand.
• Modest U.S. production increases and OPEC+ cuts suggest a positive outlook for oil prices.

Overview

US benchmark WTI crude oil futures are lower on Thursday amid concerns over demand after Federal Reserve Chairman Jerome Powell hinted at further interest rate hikes. Traders anxiously awaited official U.S. inventory data following an industry report that showed an unexpected draw in crude stocks.

Possible Short-fall in Biofuels Supportive

The market had experienced a dollar-per-barrel gain in the previous session due to surging corn and soybean prices, which raised expectations of reduced biofuels blending and increased oil demand due to potential crop shortfalls worldwide.

Caution as Powell Hints at Rate Hikes

Caution prevailed as Powell emphasized curbing inflation and hinted at two more rate hikes. Higher interest rates raise borrowing costs, could potentially dampen economic growth and reduce oil demand.

Eyes on China Stimulus, Economic Activity

Oil prices maintained their previous gains as the market eagerly awaited key catalysts: signs of optimism in Chinese demand and the release of U.S. inventory data. Oil traders remain focused on China’s economic rebound, anticipating potential stimulus measures that could bolster oil demand. Moreover, forthcoming data on Chinese factory activity holds the potential to impact oil price movements.

API Reports Surprise Draw Ahead of EIA

Later on Thursday, the U.S. Energy Information Administration (EIA) is set to release official inventory data, following a one-day delay due to the Juneteenth public holiday. Preliminary indicators from the American Petroleum Institute (API) showed a surprise decline of about 1.2 million barrels in U.S. crude oil inventories, defying analysts’ expectations of a build.

Short-Term Outlook:  Low Supply May Drive Sentiment Higher

Despite these short-term fluctuations, oil prices could see an upward trajectory due to modest increases in U.S. oil production and production cuts by the OPEC+ group, which are expected to limit crude supply in the coming months, as highlighted by an executive at U.S. shale producer EOG Resources.

Technical Analysis

WTI Crude Oil sentiment is slightly bullish as the current price hovers around 72.13, just below the previous 4-hour close. The price remains above both the 200-4H and 50-4H moving averages, indicating positive momentum. The 14-4H RSI reading of 57.90 suggests a moderately bullish stance, with buying pressure slightly outweighing selling pressure.

The main support area lies between 68.31 and 67.37, providing potential buying opportunities, while the main resistance area is identified between 72.75 and 73.55, acting as a barrier for further price increases. Overall, the market sentiment leans towards a slightly bullish outlook, but monitoring developments around support and resistance levels is essential.