Oil Prices Forecast: Eased Venezuelan Sanctions and OPEC Cuts Fuel WTI Volatility

Highlights

• Easing of U.S. sanctions on Venezuela could provide a much-needed supply lift, but expect a slow roll.
• The Middle East remains a geopolitical tinderbox, with tensions capable of igniting oil prices.
• Saudi Arabia tightens the taps on crude exports, fortifying a price floor in partnership with Russia.

Navigating the Oil Market’s Geopolitical Maze

The oil market is navigating a maze of geopolitical moves and policy changes, with key players like Venezuela, the Middle East, and Saudi Arabia stirring the pot. Prices are swinging as traders weigh factors like the U.S. easing off on Venezuelan sanctions, escalating conflicts in the Middle East, and falling Saudi exports.

Venezuela: A Glimmer of Supply Increase

U.S.-Venezuela relations are warming up as both countries reach an understanding that could ease sanctions on the oil-rich nation. With the U.S. curbing Venezuela’s oil exports since 2019 to punish President Maduro’s regime for election irregularities and human rights violations, any slackening of these sanctions could be a windfall for oil supply. Yet, there’s a caveat—Venezuela’s oil sector has been marred by lack of investment, implying a gradual, rather than immediate, impact on oil production.

The Middle East: A Volatile Power Keg

Oil prices remain susceptible to fluctuations driven by the instability in the Middle East. The ongoing conflict between Israel and Hamas pushed Brent up by 7.5% last week. Iran’s looming threat of a broader conflict and President Biden’s upcoming high-stakes visit to Israel add more complexity to the region. The consequences of these geopolitical risks are far-reaching and could potentially lead to spikes in oil prices.

Saudi Arabia: Cutting Supply, Solidifying Prices

Saudi Arabia’s crude oil exports have dwindled to their lowest in over two years, marking a 7.1% decrease to 5.58 million barrels per day. Coordinated voluntary supply cuts with Russia further reduce global oil availability. Coupled with the U.S. sanctions on Russian oil tankers violating the $60/barrel limit, it’s evident that the OPEC+ alliance is aiming to maintain a firm price floor for oil.

Russian Involvement

Russian President Vladimir Putin has indicated that OPEC+ supply cuts are likely to continue until 2024 and beyond. Russia’s dialogue with Iran, Israel, and other Middle-East nations highlights its increasing geopolitical influence, which could have ramifications for oil supply and demand dynamics.

Short-term Forecast: A Balancing Act

The tug-of-war between supply and demand continues. While easing sanctions on Venezuela hint at a bearish trend, escalating conflicts in the Middle East and Saudi Arabia’s export cuts paint a bullish picture. Overall, the oil market is poised for a period of heightened volatility, making it crucial for traders to keep a vigilant eye on these geopolitical hotspots.

Technical Analysis

The current daily price of light crude oil futures at 86.48 is situated above the 200-day moving average of 77.79, which is typically an indicator of a bullish underlying trend in the long term. However, it falls just above the 50-day moving average of 85.49, suggesting that the asset is in a short-term bullish phase as well.

The price hovers above the main support level of 82.68 and below the minor resistance of 88.21. Given this configuration, the market sentiment seems to be cautiously bullish, both in the short and long term.

Despite the bullish outlook, conditions could shift quickly to weaker if the selling pressure is strong enough to take out the 50-day moving average. Trader reaction to this level at $85.49 is likely to set the tone on Tuesday.

The trigger point for a potential breakout to the upside is $88.21.