Oil Prices Forecast: WTI Surges Amid Tight Supplies & Chinese Demand

Highlights

• Robust holiday demand in China propels a 2% weekly surge in oil prices.
• U.S. oil production forecasted to slow, indicating potential market deficit ahead.
• October’s OPEC+ meeting looms large; market eyes potential supply adjustments.

Overview

Oil prices witnessed a 2% weekly surge, buoyed by robust holiday demand from China and tight U.S. supply, even as the market speculates on potential supply increments from Saudi Arabia.

Chinese Demand Surge

China’s Golden Week holiday, which started on Friday, has fueled an uptick in oil prices. The boost is attributed to both international and domestic travel. Recent data reveals that the daily flights booked domestically for this year’s Golden Week have increased by 20% compared to 2019 figures, pre-COVID era. Additionally, with the stabilization signs in China’s factory activity as per recent polls, the world’s second-largest economy is likely to experience an uptick in oil demand, reinforcing the bullish sentiment.

U.S. Fundamentals & Market Dynamics

The U.S. has exhibited consistent economic growth, suggesting sustained fuel demand. Simultaneously, tight U.S. supplies, especially with Cushing storage at its lowest since July 2022, offer price support. Notably, with U.S. oil production expected to decelerate, a potential market deficit of over 2mb/d might emerge in the final quarter, given the global demand of 103mb/d.

OPEC+ Anticipation

All eyes are set on the upcoming OPEC+ meeting, scheduled for Oct. 4, for cues on Saudi Arabia’s potential move to enhance oil supply. The recent near-30% price spike this quarter raises speculation on early easing of cuts, particularly by Saudi Arabia.

Short-Term Forecast

Given the current demand-supply dynamics, the market sentiment leans bullish. However, traders are cautious, considering the overbought market scenario and the pivotal OPEC+ meeting’s impending outcome.

Technical Analysis

The current Daily price of Light Crude Oil Futures stands at $91.73, marginally above its previous close of $91.71. When evaluated against the 200-Day moving average of $77.30, it is trading significantly higher, showcasing a prevailing bullish momentum. This sentiment is further reinforced when comparing it to the 50-Day moving average of $84.25.

The 14-Day RSI reading of 66.48, while leaning towards the overbought territory, still reflects a strong momentum.

In terms of support and resistance, the commodity is trading between the minor support level of $88.21 and minor resistance at $92.49. Given these metrics, the current market sentiment leans bullish for Light Crude Oil Futures.