Oil Price Forecast: Supported by Russian Political Unrest, Supply Disruptions

Highlights

• US oil prices climb on fears of political instability in Russia.
• Assumption of uninterrupted Russian oil supply questioned after recent events.
• Anticipated tightening of the oil market due to Saudi Arabia’s output cuts.

Overview

US benchmark West Texas intermediate (WTI) crude oil prices are climbing on Tuesday, driven by fears of political instability in Russia and potential disruptions in supply. Traders also expressed optimism regarding increased U.S. demand ahead of the summer driving season. Over the weekend, tensions between Moscow and Russian mercenary group Wagner eased. The armed mercenaries withdrew from Rostov, averting a clash with the capital.

Russian Oil Supply Assumptions Shaken

ANZ analysts noted that the assumption of uninterrupted Russian oil flowing into the global market could no longer be taken for granted following the recent events. They suggested that a risk premium may now be applied to the oil price due to the potential for further civil unrest. Concerns about President Vladimir Putin’s grip on power and potential disruptions to Russian oil supply have emerged, although current loadings have remained on schedule.

Saudi Output Cuts Tighten Market

Investors had already been considering the impact of reduced supply, as Saudi Arabia pledged to cut output starting in July. The additional unilateral cut of 1 million barrels per day (bpd) by Saudi Arabia, combined with the anticipated seasonally stronger demand, is expected to tighten the market during the third quarter, according to BMI Research analysts.

Delicate Market Sentiment Dampens Prices

However, BMI Research analysts also cautioned that market sentiment remains delicate, which may limit significant price increases. Last week, oil prices dropped around 3.6% amid worries that rising interest rates by the U.S. Federal Reserve could dampen demand, while China’s economic recovery fell short of expectations.

Rising US Demand Fuels Optimism

Market participants are closely monitoring signs of increased demand for transportation fuels, especially gasoline, in the United States as the peak summer driving season approaches. The American Automobile Association estimates that 43 million motorists, a 4% increase from 2019, will travel significant distances during the upcoming Independence Day weekend, as highlighted by ANZ analysts.

Global Gasoline Demand Soars Higher

JP Morgan analysts reported a year-on-year growth of 365,000 bpd in global gasoline demand. They also said consumption reached an eight-week high of 9.4 million bpd in the week of June 17. Additionally, a Reuters poll revealed a decline in both crude and gasoline inventories during the week ending June 23.

Investors Anticipate API, EIA Oil Data

Investors eagerly await the release of official U.S. oil inventory data by the American Petroleum Institute (API) on Tuesday, followed by the Energy Information Administration’s (EIA) report the next day. These reports will provide further insights into supply-demand dynamics and significantly influence market sentiment in the short term.

Trader Focus on Political Instability, Potential Supply Disruptions

In summary, oil prices rose due to concerns over political instability in Russia and potential supply disruptions. Market participants closely monitor developments in Russia, Saudi Arabia’s output cuts, and the growing demand for transportation fuels in the United States. Despite fragile market sentiment, there is anticipation of a tighter oil market in the third quarter.

Technical Analysis

WTI Crude Oil sentiment appears to be relatively neutral on the 4-hour chart. The price is trading near the previous 4-hour close, slightly below the 200-4H and 50-4H moving averages. The 14-4H RSI is close to the neutral zone.

The market is range-bound, with the price fluctuating within the main support area of 68.31 to 67.37 and the main resistance area of 72.75 to 73.55. These factors indicate a lack of strong bullish or bearish momentum in the market at the moment. Traders should closely monitor potential breakouts or breakdowns from the identified support and resistance levels including the moving averages for further market direction.