Oil Price Forecast: Rebounding on Saudi and Russia Supply Cuts, Weaker Dollar

Highlights

• Oil prices bounce back on supply cuts and weaker dollar.
• Saudi Arabia and Russia extend production cuts, boosting prices.
• Traders anticipate crucial data releases for demand assessment.

Overview

U.S. West Texas Intermediate crude oil prices regained ground on Tuesday, bouncing back after a previous session’s dip. Traders shifted their focus to supply cuts by major oil exporters, Saudi Arabia and Russia, while eagerly awaiting data that could shed light on demand trends.

Traders Believe Fed Tightening Cycle Nearing Its End

Following a 1% decline on Monday, largely influenced by expectations of forthcoming U.S. interest rate hikes and profit-taking after a notable 4.5% surge the previous week, prices found some support. Although central bank officials acknowledged the potential need for further interest rate increases to tackle inflation, markets found solace in indications that the current tightening cycle may be nearing its end.

Supply Cuts Provide Additional Boost

The announcement of supply cuts by Saudi Arabia and Russia, slated for August, provided an additional boost to benchmark prices. Furthermore, the decline of the U.S. dollar to a two-month low contributed to the positive sentiment. A weaker dollar makes crude more affordable for holders of other currencies, often stimulating oil demand.

Saudi Arabia confirmed an extension of its unilateral production cut of 1 million barrels per day (bpd) until at least August, while Russia revealed plans to reduce its oil exports by 500,000 bpd next month. This move instilled confidence in portfolio investors, prompting some to cautiously reenter the crude oil market and alleviate the prevailing pessimism from the end of June.

Hedge Funds, Money Managers Go Long

Recent data from exchange and regulatory records indicated that hedge funds and other money managers acquired approximately 47 million barrels in the six major petroleum futures and options contracts during the week ending July 3-4. Notably, purchases were concentrated in crude oil (+52 million barrels), including Brent (+25 million) and NYMEX and ICE WTI (+27 million).

API Expected to Report 200K Barrel Build

Looking ahead, traders were eagerly anticipating the release of U.S. crude inventory data from the American Petroleum Institute (API) later on Tuesday. Analysts expected a build of around 200,000 barrels. Additionally, investors were keeping a close eye on upcoming reports, such as the U.S. Consumer Price Index, a crucial gauge of inflation, as well as economic data from China, to gain insights into the future demand outlook.

Short-Term Outlook:  Bullish

In conclusion, oil prices rebounded as supply cuts by Saudi Arabia and Russia, coupled with a weaker U.S. dollar, supported the market. Traders awaited crucial data releases to assess the demand landscape, while recent investments by hedge funds signaled a cautious return of confidence.

Technical Analysis

WTI Crude Oil prices experienced a modest upward movement, with the current 4-hour price at 73.40, slightly higher than the previous close.

The market is trading below the long-term 200-4H moving average, indicating a potential bearish sentiment, while the short-term 50-4H moving average suggests positive momentum. The 14-4H RSI reading of 56.79 falls within the neutral-to-stronger range.

The main support area is identified between 67.37 and 68.31, while the main resistance area is between 74.15 and 75.06, with the current price in a position to challenge the resistance area. Overall, the market sentiment for WTI Crude Oil leans towards a cautious bullish bias, pending further confirmation of sustained upward movement.