Oil Prices Forecast: Supply Concerns Push Futures Near 10-Month High

Highlights

• Oil prices soar, with Brent and WTI benchmarks nearing November 2022 peaks.
• OPEC paints a rosy demand picture as EIA foresees a dip in global oil inventories.
• Libya shuts down four major oil export terminals after a severe storm hits.

Oil’s Bullish Momentum

Oil prices continue their upward trend, with Brent futures and U.S. West Texas Intermediate (WTI) crude witnessing significant gains. Recent data has shown both benchmarks nearing their highest levels since November 2022. Key drivers include the Organization of the Petroleum Exporting Countries (OPEC) presenting an optimistic demand outlook and the U.S. Energy Information Administration (EIA) predicting a global oil inventory decline.

Supply Dynamics

Tightening supply concerns remain at the forefront of the oil price surge. Libya, an OPEC member, recently closed four eastern oil export terminals due to a severe storm. Additionally, Saudi Arabia and Russia have extended their voluntary supply cuts until the end of the year, further limiting the market supply. Russia expects its oil production to decline by 1.5% this year, as per statements from Energy Minister Nikolai Shulginov.

Inventory and Production Insights

While Brent futures indicate tighter market supply in the short term, U.S. oil and gasoline inventories have seen unexpected increases, contradicting analyst estimates. Data from the American Petroleum Institute (API) reveals rising crude stocks and a considerable growth in gasoline and distillate inventories. Contrarily, the EIA forecasts U.S. crude oil production to rise significantly over the next two years, emphasizing the dynamic nature of the global oil market.

Economic Considerations

Despite the bullish market sentiment, concerns about weaker demand, especially from China, are tempering further gains. OPEC remains optimistic about global oil demand growth for the coming years, downplaying macroeconomic challenges like high interest rates and inflation. Market participants are also keenly awaiting U.S. inflation data, specifically watching for cues that could influence the Federal Reserve’s interest rate decisions.

Short-Term Forecast

Considering the supply restrictions, bullish demand outlook, and recent inventory data, the short-term forecast for oil prices leans bullish. However, broader macroeconomic factors, especially regarding China’s demand and U.S. economic data, may introduce volatility.

Technical Analysis

The Light Crude Oil Futures’ current 4-hour price is 89.12, which is marginally above its previous 4-hour close of 89.05. It remains above both the 200-4H moving average (82.55) and the 50-4H moving average (86.78). The 14-4H RSI stands at 70.05, suggesting the commodity is in overbought territory.

Presently, the price is near the main resistance zone of 90.10 to 93.74 and comfortably above the main support zone of 84.89 to 83.81. With these indicators, the market sentiment for Light Crude Oil Futures leans bullish, but caution is advised due to the overbought RSI reading.