Oil Outlook: Hesitation of oil bulls?

WTI’s price action seems to have been wobbling yet a bullish predisposition seems to remain present among oil traders since our last report. For the time being, we intend to have a look at the conditions in the US oil market yet also have a look at the supply and demand sides of the international oil market. In this report, we aim to shed light on the catalysts driving WTI’s price, assess its future outlook and conclude with a technical analysis.

Oil: Overview Report

US oil market’s tightness interrupted

The tightness of the US oil market seems to have been interrupted. We note though that the number of active oil rigs in the US dropped by one, which tended to imply some slight easing demand. The worries for the demand side of the US market heightened as API reported a substantial rise of US inventories, reporting a substantial increase of 9.3 million barrels. Furthermore, an increase of oil inventories was also reported by EIA the following day albeit narrower this time, with the increase reported being of 3.165 million barrels.

Despite the divergence of the amounts reported by the API and EIA, the key take-away seems to be that oil production levels were able to reach and surpass aggregated US demand, thus marking an interruption of the tightness of the US oil market. Should the slack in the US oil market widen in the coming week, we may see it having a bearish effect on Oil prices.        

The supply side of the international market

The uncertainties characterising the supply side of the international market tend to push oil prices higher. We note that Russia’s government was reported to have instructed Russian oil companies to reduce production levels to reach OPEC targets. Russian energy minister Novak stated that Russia is to cut oil output and exports by an extra 471k barrels per day (bpd) until the end of the current quarter.

The production cuts announced tend to intensify the uneasiness of oil traders for the supply side of the international oil prices. Overall we expect OPEC’s intentions to cut production levels to maintain a relative tightness in the international oil market and could intensify market worries for the supply side of the market thus oil prices may get some support in the coming week

A robust demand side could support oil prices

Forecasts for the outlook of the demand side of the international oil market seem to be quite optimistic. It’s characteristic that the International Energy Agency was reported to forecast demand will rise by 1.3 million barrels a day in 2024. Similarly, OPEC officials also expect oil demand to rise in the year. Such expectations understandably may provide support for oil prices, yet we tend to remain rather skeptical about the issue.

We would like to see more concrete evidence stemming from China and the US about increased oil demand, or at least factors underpinning the demand . It should be noted that in the coming week, we get China’s and the US manufacturing PMI figures for March and a possible improvement of economic activity in the manufacturing sector could provide some more credibility to the forecasts of increased oil demand and could thus support oil prices.   

Oil: Technical Analysis

WTI Daily Chart

• Support: 80.20 (S1), 76.50 (S2), 72.40 (S3), 68.00 (S4)
• Resistance: 83.00 (R1), 85.55 (R2), 89.60 (R3), 94.00 (S4)

Oil bulls seem to hesitate as the commodity’s price action has difficulties to surpass the 83.00 (R1) resistance line. Yet there seems to be a bullish predesposition among oil traders, given that WTI’s price action despite some stabilisation, remains in the boundaries set by an upward channel guiding WTI’s price since the 5^th of February. It should be noted that the RSI indicator remains above the reading of 50 implying the presence of a bullish mood among market participants, while similarly the 20 moving average (MA) which is also the median of the Bollinger bands, the 50 MA (green line) and the 100 MA (orange line) are all pointing upwards supporting the price action and the notion of a bullish outlook.

Yet for the bullish outlook to be maintained the commodity’s price action has to form new higher highs. Thus should the bulls actually maintain control over the pair we may see WTI’s price action breaking the 83.00 (R1) resistance line taking aim of the 85.55 (R2) resistance level. Should the R2 be broken the way would be paved for  WTIs’ price action to reach the 89.60 (R3) resistance hurdle.

Yet should WTI’s price action fail to break clearly the R1 the commodity’s price may wobble in a sideways motion between the 83.00 (R1) and the 80.20 (S1) levels while risking a possible devaluation. Should the bears take over the reins of the commodity’s price action, we may see it breaking the 80.20 (S1) support line and taking aim of the 76.50 (S2) support base. Even lower than the S2 we also note the 72.40 (S3) support barrier in a more extreme bearish scenario.             

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