Oil Price Forecast: Lower on Demand Concerns, US-Iran Nuclear Deal Uncertainty

Highlights

• WTI oil prices face second consecutive weekly loss due to demand concerns and US-Iran nuclear deal uncertainty.
• Reversal in sentiment as rising US fuel stocks and weak Chinese export data impact oil prices.
• Mixed stance of major central banks and China’s sluggish fuel demand recovery add to market uncertainty.

Overview

WTI oil prices are facing a second consecutive weekly loss as concerns about demand and uncertainty surrounding a potential nuclear deal between the United States and Iran weigh on the market. Despite an initial rebound on Thursday, with prices recovering from earlier losses, the U.S. benchmark slid by approximately $1. The decline comes as both the U.S. and Iran denied a report suggesting they were nearing a nuclear agreement. As the week draws to a close, WTI is on track to experience losses of around 1%, following a similar decline in the previous week.

Oil Prices Surge, Then Retreat

Earlier in the week, oil prices had surged after Saudi Arabia announced significant output cuts. However, the gains were short-lived as rising U.S. fuel stocks and weak Chinese export data caused prices to retreat. This reversal in sentiment has left traders concerned about the future direction of oil prices.

Hope for Tighter Supply, More Demand

One factor that has given bullish traders some hope is the anticipation of tighter supply and increased demand as the United States enters the driving season. This seasonal trend could potentially drive prices higher. However, these optimistic factors are being offset by worries over China’s sluggish fuel demand recovery. China’s economic rebound has been less robust than anticipated, which has put additional downward pressure on crude prices.

Central Bank Stance Dampens Outlook

Adding to the uncertainty in the market is the mixed stance of major central banks. While a Reuters poll of economists suggests that the U.S. Federal Reserve might not raise rates at its upcoming June 13-14 meeting, other major central banks have not provided similar signals. This divergence in monetary policy expectations is further dampening the outlook for oil demand.

Short-Term Forecast:  Rangebound

Looking ahead, oil prices are expected to remain within a narrow range of around $3 above and below the $70 mark for WTI in the near term. The market will closely monitor developments related to the U.S.-Iran nuclear deal, as any progress or setbacks could have a significant impact on oil prices. Additionally, traders will continue to assess factors such as global fuel demand, Chinese economic recovery, and the actions of major central banks to gauge the overall direction of the market.

Technical Analysis

WTI Oil is trading lower, but on the strong side of $69.97 (PIVOT) early Friday. This indicates that traders are continuing to respect this important support level.

A sustained move over $69.97 will indicate the buying is increasing. However, without a fresh catalyst, a breakout to the upside will be a difficult task. If there is 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 trigger an acceleration to the downside. $63.82 (S1) is the next near-term target.

Resistance & Support Levels