Oil Price Forecast / Update: OPEC+ Cuts and China Demand Growth Push Oil Prices Higher

Highlights

• Chinese holiday travel boosts fuel demand
• Interest rate hikes may dampen energy demand
• Oil prices expected to rebound despite challenges

Overview

The United States benchmark, WTI crude oil, exhibited a steady performance on Tuesday, largely supported by a weaker greenback. The decline in the US currency typically stimulates demand for the dollar-denominated asset from foreign investors. In addition, investors are currently assessing the impact of robust holiday travel in China on fuel demand. However, concerns are looming over rising interest rates in other economies, which could potentially slow down economic growth.

At 07:32 GMT, WTI Oil is trading $69.75, up $0.39 or +0.56%. On Monday, the United States Oil Fund ETF (USO) settled at $69.27, up $1.06 or +1.55%.

Chinese Holiday Travel Boosts Oil

Oil futures climbed over 1% on Monday, buoyed by positive sentiment around holiday travel in China. While bookings for overseas trips during the upcoming May Day holiday signal a continued recovery in travel to Asian countries, the numbers are still below pre-COVID levels, with rising long-haul airfares and a shortage of available flights. Investors are optimistic that Chinese holiday travel will boost fuel demand, given that China remains the world’s largest oil importer.

Investors Concerned Over Potential Hikes

However, concerns persist among investors about potential interest rate hikes by central banks in the US, UK, and EU to curb inflation, which could dampen economic growth and energy demand. Expectations of a slowdown in US GDP growth in the first quarter led to a pullback in the US dollar index on Monday, supporting gains in oil prices. The Federal Reserve, Bank of England, and European Central Bank are all expected to raise rates in early May.

Oil Prices Expected to Rebound

Other factors affecting the oil market include a still-hawkish Federal Reserve, recession predictions in the West for the second half of 2022, lower than expected oil demand recovery in China, and robust Russian oil exports despite an official pledge to cut production by 500,000 barrels per day. Despite these challenges, we anticipate that oil prices will rebound to $85 per barrel and above in the coming months, supported by the OPEC+ cut and growing evidence of oil demand growth in China.

Russia Exceeds Oil Loading Promise

Despite Russia’s Deputy Prime Minister Alexander Novak’s promise to extend cuts until the end of the year, trading and shipping sources indicate that oil loadings from Russia’s western ports in April will exceed 2.4 million barrels per day, the highest level since 2019.

Investors Await US Oil Inventories Data

Investors are also eagerly awaiting industry data on US oil stockpiles, with analysts predicting a decline of around 1.7 million barrels for the week ending April 21st. The US government’s data on inventories is expected to be released on Wednesday. We will keep a close eye on market developments and their potential impact on oil prices.

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.