Oil Price Forecast / Update: Demand Concerns Rise as US Economic Data Weakens

Highlights

• Weak US economic data, interest rate hikes spark bearish market sentiment
• U.S. crude oil inventories fell, but gasoline stockpiles unexpectedly rose
• China may reduce quotas for refined oil product exports

Overview

WTI oil is trading higher on Friday after recovering from early session weakness. Nonetheless, the U.S. benchmark is still headed for a weekly decline. Softening U.S. economic data and a rise in U.S. gasoline inventories are raising concerns about a recession and slower global oil demand.

At 13:00 GMT, WTI Oil is trading $78.18, up $1.05 or +1.36%. The United States Oil Fund ETF (USO) is at $68.39, up $0.79 or +1.17%.

Oil Demand Concerns Grow as US Economic Data Weakens

Following weak U.S. economic data and expectations of interest rate hikes, market sentiment has remained bearish, sparking concerns over a potential recession that could negatively impact oil demand.

As a result, WTI is anticipated to trade in the range of $75-$80 for the next week, as investors seek to determine whether U.S. gasoline demand will increase during the summer driving season, and if China’s oil demand will indeed pick up during the second half of the year.

Recent economic data indicated a rise in weekly jobless claims, suggesting that the U.S. labor market may be slowing down due to the cumulative effect of multiple interest rate hikes by the Federal Reserve. This has added to worries about a potential slowdown in fuel demand.

Gasoline Stockpiles Rise

According to Energy Information Administration data released on Wednesday, U.S. crude oil inventories fell more than expected last week as refinery runs and exports increased, while gasoline stockpiles unexpectedly rose due to disappointing demand.

China May Cut Refined Oil Exports Quota, Russia Oil Loadings to Hit 2019 High

A Reuters survey suggests that China may reduce quotas for refined oil product exports. This may happen in a second batch for 2023. The reason behind this could be the improvement in domestic demand. Another possible reason could be the reduced need to boost the economy through oil products.

Despite Moscow’s commitment to reduce output, trading and shipping sources have reported that oil loading from Russia’s western ports in April is expected to exceed 2.4 million barrels per day, the highest level since 2019.

Technical Analysis

From a daily technical viewpoint, WTI Oil is trading on the strong side of its daily pivot at $73.89, but under the R1 level at $82.53. The long-term technicals appear to be in favor of an upside move, but the short-term outlook indicates potential weakness.

A sustained move over R1 at $82.53 will indicate the buying is getting stronger. This could lead to a near-term acceleration to the upside. However, a sustained move under R1 will indicate the short-term selling pressure is getting stronger with the pivot at $73.89 the next major target.

Since the trend is up, new buyers are likely to show up on a break into $73.89 since this is considered a value level.

For a look at all of today’s economic events, check out our economic calendar.