Oil Prices Forecast: Brent, WTI Futures Boosted by Supply Shortfalls

Highlights

• Oil prices rebound due to supply constraints and strong demand.
• Saudi Arabia and Russia extend production cuts into 2023, causing a market deficit.
• OPEC maintains optimistic projections for global oil demand in 2023 and 2024.

Oil Prices Rally Amidst Supply Tightness

Oil markets are edging higher on Thursday, rebounding as investors refocused on the looming tightness in crude supply for the remainder of 2023, coupled with robust demand anticipated well into the following year.

Supply Constraints and Price Surge

Spot Brent crude surged by 16 cents to reach $92.65 a barrel, and Spot West Texas Intermediate crude (WTI) climbed 32 cents, landing at $89.13. These gains come on the back of mounting concerns regarding supply shortfalls, driven by producers maintaining stringent production cuts.

Saudi Arabia and Russia’s recent commitment to extend output reductions until the close of 2023 has led the International Energy Agency (IEA) to predict a substantial market deficit in the fourth quarter. The IEA largely upheld its demand growth estimates for this year and the next. However, failing to implement cuts at the start of 2024 could tip the scales toward surplus, albeit with uncomfortably low stock levels.

OPEC’s Optimism and Near-Term Outlook

Meanwhile, the Organization of the Petroleum Exporting Countries (OPEC) continues to project robust growth in global oil demand for 2023 and 2024. The oil market appears tightly balanced for the next two to three quarters, owing to persistent supply constraints amidst sustained demand. Geopolitical risks and economic uncertainties are expected to drive Saudi Arabia’s decision to maintain production cuts into the first quarter of 2024.

Volatility Fueled by Inventories Boost

Both Brent and WTI benchmarks achieved 10-month highs on Wednesday, but sentiment took a hit after a surprise increase in U.S. crude and fuel inventories raised concerns about demand. U.S. crude inventories unexpectedly rose by 4 million barrels last week, defying analyst expectations of a 1.9 million-barrel drop. Simultaneously, fuel inventories exceeded forecasts due to increased refining activity.

Economic Factors at Play

On the economic front, the latest U.S. inflation figures have strengthened expectations that the Federal Reserve will hold off on raising interest rates in the near term. This decision could further boost hopes of sustained oil demand. Higher interest rates typically increase borrowing costs, potentially dampening economic growth and reducing oil consumption.

Short-Term Outlook

Oil markets are currently characterized by tight supply conditions and persistent demand, buoyed by producer commitments to output cuts. Both bullish situations However, near-term market volatility is a possibility due to unforeseen supply and demand fluctuations, as demonstrated by the recent unexpected increase in U.S. crude inventories. Traders and investors will closely monitor geopolitical developments and economic indicators for clues about the future direction of oil prices.

Technical Analysis

The current 4-hour price for Light Crude Oil Futures stands at 89.06, slightly higher than the 50-4H moving average of 87.27 and significantly above the 200-4H moving average of 82.82, suggesting an overall bullish trend. The 14-4H RSI reading of 63.43 indicates healthy momentum, leaning towards the overbought territory but not excessively.

The main support lies between 84.89 to 83.81, while the main resistance ranges from 90.10 to 93.74. Minor levels are absent. Considering these factors, the market sentiment appears bullish, with strong potential for further upside movement.