Oil Price Forecast: WTI Slides as Supply and Economic Fears Intensify

Oil Highlights

• Oil prices decline for the third consecutive week
• Economic worries in the US and China affect market sentiment
• Supply concerns, mounting fears of a potential recession impact oil prices

Oil Overview

Oil prices settled lower on Friday, marking the third consecutive week of decline. The market faced a balancing act between supply concerns and renewed economic worries in the United States and China.

West Texas Intermediate (WTI) U.S. crude futures fell 1.2% to $70.04. The U.S. benchmark also fell 1.5% for the week. The United States Oil Fund ETF (USO) settled at $62.04, down $1.21 or -1.91%.

Economic Concerns Deepen

Economic concerns heightened as talks over the U.S. government’s debt ceiling were postponed and worries grew over a crisis-hit regional bank, leading to mounting fears of a potential recession in the world’s largest oil-consuming country.

Inflation Concerns Rise

Federal Reserve Governor Michelle Bowman stated that if inflation remains high, the central bank will likely need to raise interest rates further. Meanwhile, China’s April consumer price data showed slower growth compared to March, falling short of expectations. Additionally, factory gate deflation deepened, casting doubt on China’s recovery from COVID restrictions and its impact on oil demand growth.

US Rig Count Hits Record Low

In the United States, the oil and natural gas rig count reached its lowest level in nearly a year, with a significant decrease in gas rigs—the largest decline since February 2016. These factors influenced the market’s sentiment, and despite Iraq’s oil minister expressing doubts about further production cuts from OPEC+, the market found support in the forecasted emerging supply deficit for the second half of the year. OPEC’s report indicated that the producer group expects higher demand for its own crude in the period of July to December, projecting an increase of 90,000 barrels per day (bpd) compared to previous estimates.

OPEC Maintains Oil Demand Forecast

Although the Organization of the Petroleum Exporting Countries (OPEC) maintained its global oil demand forecast for 2023, anticipating economic risks to be offset by higher Chinese demand growth, the market also found support from U.S. Energy Secretary Jennifer Granholm’s suggestion that the country could repurchase oil for the Strategic Petroleum Reserve (SPR) after completing a mandated sale in the following month.

Strong US Dollar Pressures Oil Prices

Furthermore, the strength of the U.S. dollar against the euro added pressure to oil prices, making dollar-priced oil costlier for holders of other currencies. The lack of confidence in the economy prompted a retreat to the safer dollar, contributing to pessimism about oil demand.

Technical Analysis

WTI Oil is trading on the weakside of $72.57 (S1), making it new resistance. A sustained move under this level will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $68.49 (S2) over the near-term.

Overtaking, $72.57 (S1) will signal the return of buyers. If this move can generate enough upside momentum then look for the market to evenually reach the major pivot at $78.02.

Resistance & Support Levels