Oil Price Forecast: Supported by Anticipated Tightening in US Supplies

Highlights

• WTI crude oil prices edge higher on possible US supply tightening.
• Investors await US inventory data after a decline due to weak Chinese GDP.
• Signs of buyer interest and projected decline in US shale oil production suggest market shift.

Overview

WTI crude oil prices are edging higher during the Asian trade on Tuesday. Investors were closely monitoring the possibility of a tightening in US crude supplies following a decline in the previous session caused by weaker-than-expected Chinese economic growth. The US benchmark had fallen over 1.5% on Monday, reflecting the market’s response to the unfavorable news.

API Expected to Report Crude Oil Draw

Market participants eagerly awaited industry data from the American Petroleum Institute (API), set to be released later on Tuesday. The data is expected to reveal a decrease in US crude oil stockpiles and product inventories from the previous week. Additionally, the US Energy Information Administration is scheduled to release its report on Wednesday, providing further insight into the state of US crude supplies.

According to a Reuters poll of four analysts, it is estimated that US crude inventories fell by approximately 2.3 million barrels during the week ending July 14. This anticipated decrease in inventories is likely to contribute to the upward momentum in oil prices.

Slow China GDP Growth Threatens Demand

The lackluster gross domestic product (GDP) data released by China on Monday has cast a cautious shadow on oil prices. China’s GDP grew by 6.3% year-on-year in the second quarter, falling short of analyst forecasts of 7.3%. This disappointing economic performance has raised concerns about the strength of demand recovery in the country.

Bearish Sentiment Dampens

Despite these factors, there are signs of increasing interest from buyers in the market. Last week, oil prices broke above their recent consolidation pattern, potentially signaling a decrease in selling pressure and exhaustion in bearish sentiment. This development indicates a potential shift in market dynamics.

EIA Predicts Decline in Shale Oil Production

Furthermore, data from the Energy Information Administration indicates that US shale oil production is projected to decline to around 9.40 million barrels per day in August. If this projection holds true, it would mark the first monthly decline since December 2022, highlighting a potential tightening of supply.

Libya Resumes Output

However, the resumption of output at two out of three Libyan fields that were previously shut down could contribute to global supply levels. The halt in output was prompted by a protest against the abduction of a former finance minister. The resumption of production in Libya may offset some of the potential tightening observed in other regions.

Short-Term Outlook:  Cautiously Bullish

In conclusion, WTI crude oil prices displayed a modest increase in Asian trade amid expectations of tightening US crude supplies. Investors eagerly anticipated the release of industry data, with hopes of confirming a decrease in inventories. Despite weaker-than-expected Chinese economic growth, signs of buyer interest and potential declines in US shale oil production suggest a possible shift in market sentiment. However, the resumption of output in Libya could mitigate some of the supply concerns.

Technical Analysis

WTI Crude Oil shows a relatively stable market sentiment as the current price of $74.30 is slightly above the 50-4H moving average of $74.26. It also remains above the 200-4H moving average of $71.34, indicating potential bullish strength. The 14-4H RSI reading of 43.77 suggests a neutral to slightly weaker momentum.

The market exhibits a neutral to slightly bullish outlook, trading within the main support area of $69.88 to $70.58 and the main resistance area of $76.92 to $77.99. Monitoring key levels will provide further insights into the market’s direction.