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Oil Price Forecast: Big Surge on Tight Gasoline Market, OPEC+ Warning

By:
James Hyerczyk
Updated: May 24, 2023, 02:43 GMT+00:00

WTI oil prices rally as gasoline market tightens, with inventories at lowest since 2014, as OPEC+ warns of potential output cuts.

WTI Crude Oil

In this article:

Highlights

  • Crude oil prices rise on gasoline market expectations and OPEC+ warning.
  • US gasoline inventories reach lowest level since 2014 before Memorial Day.
  • OPEC+ output cuts and supply concerns drive oil price surge.

Overview

Crude oil prices increased on Tuesday due to expectations of a tighter gasoline market and a warning from the Saudi energy minister to speculators, hinting at possible OPEC+ output cuts.

The US benchmark, WTI Oil, ended the session at $73.72, rising by $1.88 or 2.62%. To indicate a sentiment shift, WTI crude prices need to sustain a rally above $73.81 per barrel. On Tuesday, the United States Oil Fund ETF (USO) settled at $64.90, up $0.99 or +1.55%.

US Crude Oil and Gasoline Inventories See Significant Draw: API Report

Post-settlement trade saw the US benchmark continuing to gain as per information from the American Petroleum Institute (API). API figures revealed a significant draw in both crude oil and gasoline inventories last week.

Crude oil inventories in the US fell by 6.70 million barrels, contrary to analysts’ expectations of a 525,000 million barrel build.

Gasoline inventories decreased by 6.398 million barrels, following a 2.46 million barrel drop in the previous week.

Distillate inventories declined by 1.771 million barrels, following a decrease of 886,000 barrels in the previous week.

US Gasoline Inventories Hit 2014 Lows Ahead of Memorial Day: EIA Confirmation Awaited

If the Energy Information Administration (EIA) confirms the API figures, US gasoline inventories would reach their lowest levels before Memorial Day since 2014, marking a third consecutive week of decline. Memorial Day is traditionally the beginning of peak summer travel in the US.

OPEC+ Production Cuts Raise Supply Concerns Amid Market Resilience

Additionally, production cuts by certain OPEC+ members have begun this month, raising concerns about a potential supply shortage. Saudi Arabia’s energy minister’s remarks further intensified these fears, as he warned short sellers and indicated the possibility of additional output cuts during the June 4 meeting of OPEC and its allies, including Russia. However, despite these statements, traders have not been significantly discouraged, as previous sizeable cuts announced by the group in the past year only briefly impacted the markets.

US Debt Ceiling Concerns Could Limit Oil Price Upside

Furthermore, some traders believe that the upside for oil prices is limited due to concerns about the US debt ceiling. Recent discussions on raising the government’s borrowing limit, which currently stands at $31.4 trillion, have shown no signs of progress, increasing the risk of default.

Given the slowing economy and the refilling of the Strategic Petroleum Reserve, as well as OPEC’s management of prices in relation to global demand, it is expected that oil prices will likely remain within their trading range for the year.

Technical Analysis

Daily WTI Oil

WTI Oil is trading on the strong side of $72.57 (S1). If this move continues to generate enough upside momentum then look for the market to trend towards the PIVOT at $78.04. In other words, the daily chart is indicating the way of least resistance is up.

A sustained move under $72.57 (S1) will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $68.49 (S2) over the near-term.

Resistance & Support Levels

S1 – $72.57 PIVOT – $78.02
S2 – $68.49 R1 – $82.10
S3 – $63.04

 

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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