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Oil Prices Forecast: WTI and Brent Surge as OPEC+ Cuts Loom, Inventories Shrink
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Crude prices strengthen as Saudi Arabia and OPEC+ allies mull extending production cuts, U.S. oil inventory shrinks, fueling market optimism.
Highlights
- Oil prices rebound with a 4-day climb, erasing a two week drop.
- Saudi Arabia’s extended cut might push OPEC+ to keep slashing output.
- U.S. crude inventories drop 10.6M barrels, signaling tight supplies.
- China’s revived factory activity may stoke world’s second-largest oil appetite.
Oil Prices Rally Amid Tightening Supplies and OPEC+ Speculations
Oil prices are rebounding after two weeks of decline, marking a four-day increase this Friday. A combination of shrinking supplies and the anticipation of continued output cuts by OPEC+ is fueling this rise.
Current Market Trends and OPEC+’s Role
As of 06:53 GMT, U.S. West Texas Intermediate crude (WTI) traded at $84.09 a barrel, an uptick of 0.21%, while Brent crude stood at $87.51, a 0.22% rise. Notably, WTI witnessed a robust 5% increase this week with Brent trailing closely at 3%. Market insiders are pinning hopes on Saudi Arabia, expecting the nation to prolong its voluntary cut of 1 million barrels per day into October. This move would complement the existing cuts implemented by OPEC and its allies, collectively known as OPEC+. Statements from the National Australia Bank reinforce this sentiment, suggesting that prices would need to sustainably breach US$90/bbl to see OPEC return supply to the market and to motivate U.S. shale producers to ramp up drilling.
Inventory Insights and Global Demand
Highlighting the strain on supplies, U.S. crude inventories experienced a significant drop of 10.6 million barrels last week, exceeding market expectations. Furthermore, since mid-July, commercial crude oil stockpiles have diminished by a staggering 34 million barrels. For traders and investors, these numbers serve as a valuable gauge, often correlating U.S. inventory changes with shifts in the global production-consumption equation. It’s also worth noting that ANZ reported a surge in gasoline demand – its first in three weeks – pointing to a more robust demand landscape.
External Factors Amplifying the Rise
Two additional factors are sweetening the pot for oil’s price surge. A weakening U.S. dollar, breaking its six-week ascent, is rendering oil more affordable for non-dollar holders, thereby stimulating demand. Simultaneously, recent data indicating the revival of Chinese factory activity and Beijing’s measures to prop up its languishing housing market have lifted trader optimism. They foresee these actions boosting demand in China, the world’s second-largest oil consumer.
Short-Term Forecast: Bullish
Given the confluence of tightened supplies, OPEC+ cut expectations, and a favorable external economic environment, the short-term outlook for oil prices appears bullish.
Technical Analysis
Based on the provided 4-hour chart data for Light Crude Oil Futures:
- The current 4-hour price (83.80) is identical to the previous 4-hour price, suggesting market stability in the short term.
- The price sits above both the 200-4H moving average (80.29) and the 50-4H moving average (80.49), indicating a bullish trend.
- With a 14-4H RSI of 74.65, the market is leaning towards overbought conditions, hinting at potential profit-taking or a pullback.
- The current price is slightly below the main resistance area (83.81 to 84.89) and well above the main support (81.75 to 81.43), which strengthens its bullish sentiment.
In summary, based on the technical indicators, the market sentiment for Light Crude Oil Futures on a 4-hour timeframe is bullish, but caution is advised due to the approaching overbought conditions.
About the Author
James Hyerczykauthor
James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.
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