Oil Price Forecast: Edging Higher on Debt Ceiling Bill, OPEC+ Meeting Expectations

Highlights

• WTI Oil prices rise on debt ceiling bill and OPEC+ expectations.
• Positive sentiment from debt ceiling bill and potential rate hike pause.
• Focus on OPEC+ meeting and possible output reductions.

Overview

US benchmark WTI Oil prices are edging higher on Friday, driven by bullish sentiment following the passage of a U.S. debt ceiling bill in Washington. Additionally, market participants considered the possibility of price-supportive OPEC+ production cuts over the weekend.

Debt Ceiling Bill Reassures Markets

The approval of a bill suspending the U.S. government’s $31.4 billion debt ceiling by Congress provided reassurance to the markets, averting a potential sovereign default that could have had severe repercussions on global financial markets. This development, along with signals indicating a potential pause in rate hikes by the Federal Reserve, contributed to positive market sentiment.

OPEC+ Meeting: Output Cuts Speculations

With the upcoming June 4 meeting of OPEC+ on the horizon, investor focus intensifies as ministers from key oil producing countries gather to discuss potential output reductions for government revenues.

Building upon the previous surprising cut of 1.16 million barrels per day in April, continuing the output cuts is anticipated to have a bullish impact on crude prices.

However, reports on the likelihood of such cuts diverge, with some sources suggesting limited reductions and a potential “wait and see” approach by the bloc.

Furthermore, speculation arises regarding Russia’s commitment to output cuts due to their struggles in meeting quotas. In addition, market observers highlight the significance of weak manufacturing data from both China and the U.S., which may further bolster the probability of OPEC+ implementing additional production cuts.

US and China Manufacturing Impact

Recent manufacturing data from the U.S. and China has influenced market sentiments.

The Institute for Supply Management (ISM) reported that the U.S. manufacturing PMI declined to 46.9 last month. This signaled the seventh consecutive month of contraction in manufacturing activity in the largest oil consumer worldwide.

On the other hand, China’s Caixin/S&P Global manufacturing PMI exceeded expectations. However, contrasting data from China’s official government report indicated that factory activity in May had contracted to the lowest level in five months.

Short-Term Outlook

Oil prices are currently stabilizing following disappointing global manufacturing data. It has has bolstered the case for OPEC+ to implement another production cut. The positive sentiment surrounding the U.S. debt ceiling bill and the possibility of supportive OPEC+ measures contributes to a short-term bullish outlook for oil prices. However, uncertainties remain regarding the extent of output cuts, with differing views from various sources.

Technical Analysis

WTI Oil is currently trading on the strong side of $69.97 (PIVOT), making this level new support. A sustained over this level will indicate the presence of buyers. If this creates enough upside momentum then look for the move to possibly extend into $76.28 (R1) over the near-term.

A sustained move under $69.97 (PIVOT) will signal the return of sellers. This move could create the momentum needed to challenge $63.82 (S1).

Resistance & Support Levels

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