Oil Price Forecast: Technical Rebound Ahead of US CPI Data, Fed Rate Decision

Highlights

• WTI crude prices revised downward by Goldman Sachs.
• Concerns over faltering economic recovery in China affect oil demand.
• Market awaits OPEC and IEA reports for future oil market insights.

Overview

West Texas Intermediate (WTI) crude oil futures are rebounding on Tuesday after a sharp decline the previous session, drawing the attention of bargain hunters. However, the gains are being tempered as investors exercise caution in anticipation of key policy decisions by the U.S. Federal Reserve and other central banks. This follows a significant drop in the U.S. benchmark on Monday, driven by concerns over rising global supplies and demand growth uncertainties.

Supply

:Goldman Sachs recently revised its oil price forecasts, citing higher-than-expected supplies in the coming years. The bank now predicts WTI crude prices to reach $81 per barrel in December, down from their previous estimate of $89. This downward revision has contributed to the extreme selling pressure in the market. Some investors are seeking bargain opportunities amidst the selling pressure, while others remain cautious, speculating on the possibility of Saudi Arabia cutting production further.

Demand

One major risk to oil prices is the faltering economic recovery in China, which has hampered the demand for crude oil and refined products. China, being the largest importer of these commodities, has yet to show signs of substantial demand recovery. Concerns are growing about potential demand reductions of up to 2 million barrels per day, leading to worries that the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA) may lower their demand forecasts.

Short-term Forecast

Based on current conditions, out work suggests WTI crude oil to trade within the range of $62.50 to $75 per barrel during the summer, primarily below $70 per barrel.

Meanwhile, market participants widely anticipate the U.S. Federal Reserve to maintain interest rates unchanged at its policy meeting. However, there are concerns about the resumption of rate hikes in the near future. The previous rate hikes by the Fed have strengthened the U.S. dollar, making dollar-denominated commodities more expensive for holders of other currencies, thereby weighing on prices.

Additionally, while the European Central Bank is expected to raise interest rates by a quarter percentage point on Thursday to combat stubborn inflation, the Bank of Japan is anticipated to maintain its ultra-loose policy.

Disappointing economic data from China has further fueled apprehensions about demand growth in the world’s largest crude oil importer, offsetting the price boost resulting from Saudi Arabia’s commitment to reducing an additional 1 million barrels per day of production in July.

The market is also eagerly awaiting the demand outlooks from both OPEC and the IEA. Both organizations are scheduled to release their monthly market updates later today. These reports will provide crucial insights into the future of the oil market and help shape investor sentiment moving forward.

Technical Analysis

WTI Oil is trading on the bearish side of the $69.97 (PIVOT), putting it in an extremely weak position.

A sustained move under $69.97 will indicate the selling pressure is increasing. This could create the downside momentum needed to extend the selling into the next major target at $63.82 (S1).

Retaking $69.97 will stabilize the market. While a trade through $73.26 will shift momentum to the upside.

Resistance & Support Levels