Oil Price Forecast: Stable as Market Absorbs Concerns Over Demand

Oil Price Highlights

• Oil Prices Find Support as Market Awaits ECB Announcement
• OPEC Production Cuts Begin, But Investors Remain Cautious
• U.S. Interest Rates, Bank Failures Pressure Crude Oil Prices

Oil Price Overview

Crude oil prices saw a slight increase on Thursday. However, they failed to recover from the steep 9% decline over the past three days. This was due to concerns about major consumers’ demand outweighing any potential benefits from the U.S. considering a pause in its interest rate hikes.

At 11:15 GMT, WTI Oil is trading $68.40, up $1.13 or +1.69%. on Wednesday, the United States Oil Fund ETF (USO) settled at $60.31, down $2.74 or -4.35%.

Oil Market Stabilizes after Plunge

After a week of oil prices plunging due to concerns over the U.S. economy, weak manufacturing growth in China (the largest oil importer), and the U.S. Federal Reserve’s decision to raise interest rates to their highest since 2007, the market is finally finding some support. With investors and analysts buying back into the market, there is hope that the recent positive growth in the U.S. services sector and output cuts by major producers will help to limit supply and stabilize prices. It seems that all the negative news regarding supply and demand has been factored into the current price level.

Fed Hints at Rate Hike Pause

The Federal Reserve has announced an anticipated quarter-point increase in interest rates.  However it has indicated that it may halt future increases in order to evaluate the impact of recent bank failures and wait for more information regarding the U.S. debt ceiling dispute. The failure of the third U.S. bank since March, which was attributed to their inability to handle increasing interest rates, has also affected the overall financial markets, adding further pressure.

OPEC+ Begins Voluntary Output Cuts

OPEC and its allies, including Russia (OPEC+), have begun voluntary output cuts of approximately 1.16 million bpd at the start of this month. This move is expected to support the market during the upcoming summer peak demand period. However, there is pressure on OPEC+ to demonstrate their ability to meet these production cut quotas and potentially signal additional cuts.

ECB Expected to Raise Rates

Investors are eagerly awaiting the European Central Bank’s announcement. It is expected to raise interest rates for the seventh consecutive meeting on Thursday. Meanwhile, concerns about Chinese demand continue to impact the market, particularly after a private sector survey released on Thursday revealed an unexpected decline in factory activity in April due to weaker domestic demand.

Technical Analysis

Technically, WTI Oil is trending lower, but the current intraday reversal suggests the market may have hit a short-term bottom at $63.67. This is slightly above the support (S3) at $63.04.

The market is currently straddling a second potential support level (S2) at $68.49. If traders can build a support base around this level then the market could accelerate into (S1) at $72.57.

If the selling pressure resumes and it’s strong enough to take out (S3) then the weakness could extend into (S4) at $57.58.