Oil Prices Forecast: US Inventory Plunge, OPEC Cuts Fuel Bullish Response

Highlights

• Oil prices surge due to U.S. inventory drawdown.
• U.S. crude stocks drop sharply by 11.5 million barrels, dwarfing 3.3 million barrel predictions.
• The weaker U.S. dollar after July’s job data indirectly bolsters oil prices.
• Saudi Arabia’s potential output cut extension stokes tighter oil supply expectations.
• China’s wavering economy could offset bullish oil trends, dampening global prices.

Overview

Oil prices witnessed a surge on Wednesday, influenced by multiple factors including a significant drawdown in U.S. crude inventories and concerns regarding Hurricane Idalia in the Gulf of Mexico. A declining U.S. dollar further accentuated the demand for oil.

Inventory Draw and Dollar Dynamics

The U.S. experienced a sharp decline in crude stocks, with an 11.5 million barrel reduction for the week ending August 25, far surpassing the predicted average draw of 3.3 million barrels. This suggests a robust demand in the oil market. Additionally, the dip in the U.S. dollar index after less-than-expected job openings in July has indirectly supported the oil prices. A weaker dollar renders dollar-priced oil less expensive for holders of other currencies.

Hurricane Idalia and Gulf Productions

Hurricane Idalia has become a focal concern for investors. The Gulf of Mexico contributes approximately 15% of U.S. oil output. Despite initial worries, the current trajectory predicts the hurricane will veer eastwards, avoiding major oil facilities. Chevron Corp has taken precautions by evacuating some staff, though its operations in the Gulf remain uninterrupted. However, the storm’s presence underscores potential future disruptions in the region, given expectations of a turbulent hurricane season.

Global Supply and Demand Factors

Saudi Arabia’s possible continuation of its voluntary output cut into October has raised anticipation of tighter oil supply. In response, experts believe Saudi Arabia will elevate their selling prices, particularly for crude supplied to Asian markets. Conversely, China’s uncertain economic situation, despite some recovery in July, casts a shadow over the demand side. As the world’s largest oil importer, any significant economic downturn in China might dampen global oil prices.

Short-Term Forecast

While the immediate oil market appears bullish due to reduced U.S. inventories and potential output cuts by Saudi Arabia, concerns over China’s economy and the overarching macroeconomic environment can introduce volatility. Hurricane Idalia, though not directly impacting major oil platforms, highlights the unpredictable nature of the industry and the potential for unexpected disruptions in supply.

Technical Analysis

Light Crude Oil Futures are currently trading at $81.47, just under the minor decrease from the previous 4-hour price of $81.59. The commodity is hovering above both the 200-4H moving average of $79.82 and the 50-4H moving average of $79.95, indicating a potential bullish sentiment. The 14-4H RSI reading stands at 61.68, suggesting strengthening momentum but not yet in the overbought territory.

The current price is resting at the lower edge of the main resistance area between $81.47 and $81.75, with a notable support base between $79.05 and $78.29. Overall, the market sentiment leans bullish.