Oil Prices Forecast: Inventory Focus Shifts Amid Rollercoaster Week for Futures

Highlights

• Brent and WTI log worst weekly performances since March, plummeting 11.6% and around 9%, respectively.
• U.S. bond market sell-off serves as the catalyst for oil’s nosedive, stirring fears of a global economic slowdown.
• Bond investors rattled by U.S. government’s swelling budget deficit, pushing Treasury prices to a 17-year low.

Market Volatility

Last week’s optimism in the oil market swiftly turned into this week’s anxiety, as both Brent and WTI benchmarks took a nosedive, recording their worst weekly performances since March. Brent slipped 11.6%, while WTI fell around 9%. The freefall was largely triggered by a sell-off in the U.S. bond market, raising red flags about a potential global economic slowdown and a subsequent decline in fuel (gasoline) demand.

Macro Factors and Supply-Demand Equation

Bond investors are increasingly alarmed by the U.S. government’s burgeoning budget deficit, which is pushing Treasury prices to 17-year lows. This ripples through to the oil market, given the U.S. status as the world’s leading oil consumer. Meanwhile, JPMorgan expects a modest but slower growth in oil demand for Q4 2023. On the flip side, the National Australia Bank views the recent price dip as temporary and forecasts a supply deficit this quarter.

A Glimpse of Recovery

Despite the week’s turmoil, oil prices showed modest recovery on Friday. December Brent futures rose 0.17% to settle at $84.21, while November U.S. West Texas Intermediate crude futures increased 0.22% to $82.49.

Economic Indicators to Watch

Today, all eyes will be on the U.S. monthly jobs report, while next week’s data—ranging from Friday’s non-farm payroll to U.S. CPI and China’s economic numbers—will be pivotal in shaping the market’s direction. Recent reports have indicated a slowdown in the U.S. services sector and a probable contraction in the eurozone economy, both of which have capped the oil market’s rally.

Short-Term Outlook

Despite the recent volatility and sell-off, the short-term outlook for the oil market appears cautiously bullish. Market participants are likely to focus on dwindling global oil stockpiles, with expectations that Brent could rebound to levels above $90 per barrel once attention shifts back to supply constraints.

Technical Analysis

Daily Light Crude Oil futures currently trade at 82.45, precariously positioned below the 50-Day moving average of 84.89 but comfortably above the 200-Day average of 77.53. This sets a complex stage: short-term bearish signals counterbalanced by a more extended bullish backdrop.

With the current price closely flirting with the minor support level at 82.68, there’s a critical point to watch. Moreover, there’s a decent upside runway before hitting minor and main resistance levels at 92.49 and 97.67, respectively.

Weighing these factors, the prevailing market sentiment leans cautiously bullish. This condition is likely to remain intact unless the 200-Day moving average is violated.