Oil Price Forecast / Update: Hedge Funds Buyers as OPEC+ Pledges to Reduce Production

Highlights

• Third straight weekly rise for WTI crude oil
• OPEC+ cuts boost oil prices
• Drop in U.S. crude inventories, reduced oil rigs all supportive

Overview

June WTI crude oil traded fairly steady on Thursday, as it recorded a third successive weekly rise as investors assessed the effects of OPEC+ production cuts and declining U.S. oil stockpiles against apprehensions about the worldwide economic outlook.

The US benchmark settled at $80.68, up $0.05 or +0.06%. The United States Oil Fund ETF (USO) finished at $70.25, up $0.01 or +0.01%.

Oil Prices Rise on OPEC+ Production Cuts, but Economic Concerns Linger

Following OPEC+’s pledge to reduce production, the U.S. benchmark surged by more than 6% this week, with hedge funds purchasing crude oil throughout the week, signaling a renewed interest in a “risk-on” market.

For the second consecutive week, oil prices received a boost from a more significant than expected drop in U.S. crude inventories. Moreover, the decrease in gasoline and distillate stockpiles hinted at a surge in demand. Additionally, U.S. energy companies reduced the number of oil rigs for the second week in a row, which could imply a decline in future production.

On the other hand, the latest U.S. labor market figures indicate a deceleration in economic expansion, while the services sector experienced a slower-than-anticipated growth rate. This has raised worries that the negative effects of demand destruction owing to a possible recession might outweigh the benefits of OPEC+ cuts.

The prevalence of put option buyers over call option buyers implies that traders are anxious about a potential drop in prices. Nevertheless, the current context of supply constraints implies that there is still room for price hikes, despite the brief interruption in bullish momentum.

Daily June WTI Crude Oil Technical Analysis

The main trend is up according to the daily swing chart. The trend turned up on Monday when buyers took out the previous main top at $80.97.

A trade through $81.81 will signal a resumption of the uptrend. This could trigger a surge into the Jan. 23 main top at $82.98, which is also the trigger point for an acceleration to the upside. This could create the momentum needed to challenge the Nov. 11 main top at $86.40.

On the downside the nearest support zone is $78.06 – $75.49.

Daily June WTI Crude Oil Technical Forecast

Trader reaction to a minor pivot at $80.73 is likely to determine the direction of the June WTI crude oil market early Monday.

Bullish Scenario

A sustained move over $80.73 will indicate the presence of buyers. The first target is $81.81, followed by a resistance cluster at $82.68 – $82.98.

Bearish Scenario

A sustained move under $80.72 will signal the presence of sellers. This could trigger a break into a short-term Fibonacci level at $78.06. If this fails then look for the selling to possibly extend into the short-term 50% level at $75.49.