Oil Price Forecast: Set for First Monthly Gain Amid Supply Drawdown, OPEC+ Cuts

Highlights

• Brent crude oil poised for first monthly gain due to supply drawdown and OPEC+ cuts.
• Rising interest rates create market sentiment challenges despite slight oil price increase.
• Uncertainty remains as traders monitor supply dynamics and economic indicators.

Overview

In a surprising turn of events, Brent crude oil prices are poised to achieve their first monthly gain this year. This positive development comes as a result of a significant drawdown in oil stocks and the implementation of production cuts by OPEC+. While U.S. West Texas Intermediate crude oil futures remained relatively stable on the daily chart, concerns surrounding rising interest rates dampened the overall market sentiment. However, both benchmarks closed slightly higher on Thursday and are on track to record a monthly gain of over 2%.

Tightening Supply

Market concerns regarding tightening supply have been amplified by the latest report from the U.S. Energy Information Administration (EIA). The report revealed a substantial decline of 9.6 million barrels in crude inventories for the week ending June 23, surpassing the 1.8-million-barrel draw projected by analysts in a Reuters poll. Moreover, Saudi Arabia’s decision to reduce its output by 1 million barrels per day starting in July, coupled with the broader OPEC+ agreement to limit supply until 2024, further bolsters the outlook for tightening supply.

Interest Rate Hikes Loom

Despite the positive supply-side factors, the market’s optimism was tempered by concerns over potential interest rate hikes. Federal Reserve Chair Jerome Powell indicated that the central bank is likely to resume its rate-hike campaign, citing stronger-than-expected U.S. economic data that underscored the necessity of further monetary tightening to address inflationary pressures. The fear of rising interest rates presents a potential headwind for oil prices.

Awaiting Key Indicators

Market participants eagerly awaited China’s purchasing managers index (PMI) reports, which would provide insights into the performance of the country’s factory and services sectors in June. The outcome of these reports could significantly impact Chinese oil demand in the second half of the year. Additionally, the release of U.S. oil rig count data later in the day would offer crucial indicators for future oil supply.

Short-term Forecast

Taking into account the supply and demand dynamics, along with the concerns surrounding interest rate hikes, the short-term outlook for crude oil prices remains uncertain.

The market will closely monitor the progress of OPEC+ production cuts, global economic indicators, and any shifts in monetary policy. Traders should remain vigilant as oil prices could experience increased volatility in the near term.

Driven by a drawdown in oil stocks and OPEC+’s commitment to reducing output, Brent crude oil prices are poised to achieve their first monthly gain this year. However, rising interest rates have dampened market sentiment.

Tightening supply and demand dynamics, along with upcoming economic indicators and policy decisions, will influence the future direction of oil prices. It is crucial for traders to closely monitor these factors to navigate the evolving market landscape effectively.

Technical Analysis

WTI Crude Oil is currently showing slightly bearish sentiment. The 4-hour price of 69.76 is marginally lower than the previous close of 69.96, indicating a minor downward movement.

The market is currently below the 200-4H moving average of 70.88, suggesting a potential bearish trend. However, it remains above the 50-4H moving average of 69.85, providing some support.

The 14-4H RSI reading of 53.61 indicates a neutral sentiment. The main support area lies between 67.37 and 68.31, while the main resistance area is between 72.75 and 73.55. Overall, the market exhibits a slightly bearish bias, subject to further support and resistance analysis.

The next major move will likely be determined by how traders react to the two moving averages since they have been controlling the near-term direction for days.