Oil Price Forecast: Production Cuts Underpin Oil Prices Near April Peak

Highlights

• Oil prices remain near April peak amid supply cuts.
• China’s recovery pace and supply cut durations cause concern.
• U.S. rig count falls, contributing to bullish sentiment.

Overview

U.S. benchmark West Texas Intermediate (WTI) crude oil futures experienced a minor dip on Monday but remained near April’s peak, reflecting the market’s reaction to supply management from leading producers. Saudi Arabia and Russia announced an extension of their supply cuts for another month in an attempt to tighten global markets and uphold prices. These contracts had their sixth consecutive weekly gains last week – a winning streak not seen since the transition from 2021 to 2022.

Saudis, Russians Respond to Market Volatility

The concerted efforts by these oil giants come in response to market volatility. On one hand, the anticipation of U.S. interest rate hikes slowing down, combined with a drop in OPEC+ supplies and an expected boost in oil demand recovery from China, has kept oil prices steady. Moreover, Saudi Arabia extended its voluntary production cut of 1 million barrels per day (bpd) to the end of September. Meanwhile, Russia declared a cut in oil exports by 300,000 bpd for September, despite recent damage to a warship at its Black Sea navy base, which manages 2% of global oil supply.

Gains Dampened by Worries Over China’s Recovery

However, these bullish prospects are somewhat dampened by concerns over China’s recovery pace and questions over the duration of Saudi and Russia’s supply reductions. The balance point could be around $85 per barrel (Brent) for the time being, given the current level of spare capacity. Investors also have a keen eye on upcoming Chinese economic data, as it will provide insights into the need for further stimulus measures.

Bullish Sentiment Fueled by US Rigs Drop

In the U.S., the number of operating oil rigs fell to 525 last week, the lowest count since March 2022, contributing to the bullish sentiment. Still, the overall market outlook remains mixed.

Short-Term Outlook:  Bullish with Possible Headwinds

With prices nearing their April highs, a sustained WTI break above $84.00 a barrel could pave the way towards $93.50. However, this could be stalled by any setbacks in global recovery or significant changes in oil production policies.The coming weeks will provide crucial insights into these factors and how they will shape the short-term future of the oil market.

Technical Analysis

 

Crude oil’s current 4-hour price of $82.75, higher than both the 200-4H and 50-4H moving averages ($74.91 and $80.70 respectively), indicates a bullish market trend. The 14-4H RSI at 62.57 suggests stronger momentum, reaffirming the bullish sentiment.

Given the current price is above the main support area ($78.29-$79.05) and testing the upper end of the main resistance area ($81.73-$83.63), the market appears poised for further growth, indicating a robust bullish outlook.