Oil Prices Forecast: Underpinned by Global Supply Constraints as US Shutdown Averted

Highlights

• Oil prices kick off the week on a high note, partially reversing last week’s losses.
• Brent and WTI crude futures inch up amid global supply constraints and U.S. political drama.
• OPEC+ is unlikely to make sweeping changes, setting the stage for further bullish sentiment.

Oil Markets Navigate Risk and Supply

Oil prices commenced the week on an upward swing, partially reversing last Friday’s slump. Brent and West Texas Intermediate (WTI) crude futures nudged higher on global supply constraints and a sigh of relief from traders as a last-minute deal averted a U.S. government shutdown.

Macro Factors in Play

Brent December futures saw an increment of 18 cents, or 0.2%, marking it at $92.38 a barrel. This comes on the heels of a 90-cent decline last Friday. On the other side, WTI futures for the U.S. followed suit, rising by 23 cents, or 0.3%, to $91.02 a barrel. Both these benchmarks had rallied nearly 30% in Q3 due to anticipated supply deficits in Q4, following extended supply cuts by Russia and Saudi Arabia.

OPEC+ and Policy Outlook

OPEC+, a consortium including the Organization of the Petroleum Exporting Countries, Russia, and other allies, is not expected to make any significant changes in its output policy, according to inside sources. The group’s upcoming meeting this Wednesday is likely to sustain current oil production cuts, reinforcing the bullish sentiment in the market.

U.S. Production and Demand Dynamics

In contrast to global supply constraints, U.S. crude production is nearing its pre-COVID peak levels. Specifically, Texas, the leading U.S. shale oil producer, recorded its highest output ever, reaching 5.6 million barrels per day (bpd) in July. However, the demand scenario looks less promising; U.S. crude and petroleum products supplied decreased to 20.12 million bpd in July, marking the lowest level since April.

Short-Term Forecast

The market’s immediate trajectory appears bullish, fueled by constrained global supply and steady U.S. output. Brent is expected to average around $89.85 a barrel in Q4. However, cautious optimism is advised, especially with signs of a slowing Chinese economy clouding the demand outlook.

Technical Analysis

Based on the Daily Light Crude Oil Futures chart, the current daily price of 91.04 is above the 200-Day moving average of 77.37, indicating a long-term bullish trend. It’s also above the 50-Day moving average of 84.51, confirming a short-term upward momentum.

The 14-Day RSI stands at 62.82, suggesting that the market has stronger momentum but isn’t in overbought territory.

There’s minor resistance at 92.49, which the index is approaching, and main support at 82.68, offering a strong downside cushion. These levels are critical in determining the near-term direction. Overall, the market sentiment for the Light Crude Oil Futures appears to be bullish.