Oil Price Forecast / Update: US Demand Concerns Offset Tighter Supply Outlook

Highlights

• Concerns about rising interest rates and global economic outlook
• OPEC+ supply cuts offer support, but weaker demand weighs
• China’s fuel demand recovery remains a bright spot for the oil market

Overview

WTI oil is inching lower on Monday after rebounding from earlier weakness. Weighing on prices on the opening were concerns about rising interest rates, the global economy and the outlook for fuel demand. These factors offset support from the prospect of tighter supplies on OPEC+ supply cuts.

At 09:45 GMT, WTI Oil is trading $77.90, down 0.066 or -0.08%. On Friday, the United States Oil Fund ETF (USO) settled at $68.34, up $0.74 or +1.09%.

Last week, both contracts experienced a decline of over 5%, marking their first weekly drop in five. This was due to a decrease in implied gasoline demand in the U.S. compared to the previous year, which sparked concerns of an economic recession in the world’s largest oil consumer.

Weak Earnings, Economic data, Central Bank Rate Hikes Fuel Investor Risk Aversion

Investor risk aversion and growth concerns were triggered by disappointing tech sector corporate earnings and weak economic data in the U.S. Additionally, the strengthening U.S. dollar and rising bond yields are putting pressure on commodity markets. Interest rates are expected to be raised by central banks from the United States, Britain, and Europe in the first week of May, in an effort to tackle stubbornly high inflation.

China’s March Record Crude Imports Indicate Positive Fuel Demand Outlook

Although China’s economic recovery from COVID-19 has been unsteady, the world’s top crude oil importer imported record volumes in March, according to Chinese customs data.

Refining margins in Asia have weakened due to record production from China and India. This has resulted in reduced demand for Middle East supplies loading in June. Nevertheless, analysts and traders are optimistic about China’s fuel demand recovery in H2 2023. Additionally, planned supply cuts by OPEC+ from May could tighten markets.

US Energy Firms Add Rigs After Four-Week Pause

In the U.S., energy firms added oil and natural gas rigs for the first time in four weeks, according to energy services firm Baker Hughes Co. With planned output cuts by the OPEC+ alliance and a positive demand outlook from China, prices could see a boost in the coming days.

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 under R1 will indicate the short-term selling pressure is getting stronger with the pivot at $73.89 the next major target. However, a sustained move over R1 at $82.53 will indicate the buying is getting stronger.

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.