Oil Prices Forecast: Saudi-Russia Supply Cuts Buoy Oil, But China’s Economy Casts Shadow

Highlights

• Oil prices dip due to China’s economic outlook.
• Saudi Arabia and Russia extend supply cuts.
• WTI defines a new range; demand concerns persist.

China’s Economic Woes and the Oil Market

In early Asian trading on Monday, oil prices declined, attributed largely to concerns over China’s economic trajectory. Despite this dip, Brent remained above the $90 mark, bolstered by restricted supplies following the decision by Saudi Arabia and Russia to prolong supply cuts. The recent strengthening of the USD over eight consecutive weeks has further dampened investor enthusiasm in the commodity space.

Supply-Side Dynamics Drive Prices

Over the past fortnight, both Brent and West Texas Intermediate (WTI) contracts have seen gains, with Brent registering its highest value since the previous November. This surge came in the wake of the announcement from Saudi Arabia and Russia to extend their combined voluntary supply cuts by 1.3 million barrels daily until the year concludes. Moreover, expectations are building around upcoming monthly reports from the International Energy Agency (IEA) and the Organization of the Petroleum Exporting Countries (OPEC). Any signs pointing to robust oil demand could elevate prices further.

US Producers and the Market Outlook

In the U.S., the oil industry recently added its first rig since June, as noted in Baker Hughes’ weekly update. However, the total count remains 17% less than last year. WTI seems to be defining a new price range, hovering between $83 and $93.50. Nonetheless, demand concerns in regions like China and Europe may limit significant gains.

Benchmarks and Forecasts

Both Brent and WTI have enjoyed gains for two successive weeks. Specifically, they surged by roughly 1% to a nine-month peak last Friday, influenced by rising U.S. diesel futures and supply constraints from key producers. Currently, both benchmarks are technically overbought for the sixth consecutive day. While the market sentiment remains dominated by supply-side factors, OPEC+’s commitment to maintaining a tight market through winter is clear.

Short-term Forecast

Given the prevailing market conditions and uncertainties surrounding Chinese demand, the short-term outlook for oil prices appears cautiously bullish. The anticipation of reports from key energy organizations and geopolitical dynamics, such as the Venezuela-China interaction, will significantly shape trader sentiment in the days to come.

Technical Analysis

The current 4-hour price of $87.10 slightly surpasses the previous 4-hour price of $86.95. It sits above the 200-4H moving average ($82.02) and slightly above the 50-4H moving average ($85.34). The 14-4H RSI reading is 56.69, denoting slightly strengthened momentum but still in a neutral zone.

In terms of support and resistance, the current price is nestled between the main support area (84.89-83.81) and the main resistance area (90.10-93.74). Given these metrics and its position above both moving averages, the current market sentiment for Light Crude Oil Futures appears moderately bullish.