Oil Price Forecast: Near 3-Month Highs as Saudi Arabia Plans Extend Output Cuts

Highlights

• Oil prices near 3-month highs.
• Saudi Arabia to extend voluntary output cut into September.
• Global oil demand rises to record 102.8 million bpd in July.

Overview

US benchmark WTI crude oil prices edged lower on Monday, but were hovering near three-month highs, set to post their biggest monthly gains in over a year on expectations that Saudi Arabia would extend voluntary output cuts into September and tighten global supply. Most of the strong buying activity has been occurring during the U.S. trading hours; action during the Asian session remains relatively slow and a poor indicator of sentiment.

Saudi Arabia to Extend Output Cuts

Saudi Arabia is expected to extend its voluntary oil output cut of 1 million barrels per day (bpd) for another month to include September, analysts said. The bank maintained its Brent forecast at $86 a barrel for December and expects prices to rise to $93 in the second quarter of 2024.

Record Oil Demand: Goldman Sachs

Goldman Sachs estimated that global oil demand rose to a record 102.8 million bpd in July, revising up 2023 demand by about 550,000 bpd on stronger economic growth estimates in India and the United States, offsetting a downgrade for China’s consumption. Firmer demand is driving a moderately larger deficit in H2 2023 than expected, averaging 1.8 million bpd, and a modest 0.6 million bpd deficit in 2024.

Oil Prices Surge to Multi-Month Highs

Brent and WTI settled on Friday at their highest levels since April, gaining for a fifth straight week, as tightening oil supplies globally and expectations of an end to U.S. interest rate hikes supported prices. Both are on track to close July with their biggest monthly gains since January 2022. While it seems that crude may have priced in all the good news on U.S. inflation and economic resiliency for the time being, it may continue inching higher still.

Exxon CEO Foresees Record Oil Demand

Exxon Mobil’s CEO, Darren Woods, said the company expects record oil demand this year and next year, and that this may help boost energy prices in the second half of the year. In the U.S., energy firms in July cut the number of oil rigs for an eighth straight month by one to 529, Baker Hughes said in its weekly report on Friday.

Short-Term Forecast:  Bullish

The oil market is witnessing notable developments with Saudi Arabia’s planned extension of output cuts and the strong demand growth in key economies. This has led to a bullish sentiment, with oil prices hitting multi-month highs and poised for their most substantial monthly gains in over a year. However, market watchers are advised to closely monitor any further announcements and developments, as the situation remains dynamic and may continue to influence price movements in the near term.

Technical Analysis

WTI Crude Oil is showing bullish sentiment as it trades above the 200-4H and 50-4H moving averages, with the 4-hour price at 80.29. The 14-4H RSI indicates a stronger momentum above the neutral level.

The main support area lies between 73.81 and 74.62, while the main resistance area is at 81.73 to 83.63. Despite a slight decline from the previous session, the current price remains significantly above the moving averages, supporting the positive trend.

However, traders should closely monitor the price as it approaches the main resistance area, which may pose as a potential barrier to further upward movement. And as the RSI moves closer to overbought territory.