Oil Price Forecast / Update: Market Balancing Impending Supply Cuts Against Concerns of Weaker Demand

Highlights

• OPEC+ production cuts of 1.16 million barrels per day to start in May
• Saudi Aramco and ADNOC to supply full crude contract volumes
• Some investors optimistic about China’s oil demand recovery

Overview

Oil prices are nearly flat on Monday after a three week rally, helped by impending supply cuts from Saudi Arabia and other OPEC+ producers. This balanced out concerns about weakening global growth that could dampen fuel demand.

Last week, crude prices surged over 6% following the announcement of new production cuts by OPEC+ starting in May. Nevertheless, this sudden surge caused a shift in market sentiment. While some expressed concerns over the demand outlook, others viewed it as a potential catalyst for even tighter markets in the second half of the year.

At 09:06 GMT, June WTI crude oil futures are trading $80.91, up $0.23 or +0.29%. On Thursday, the United States Oil Fund ETF (USO) settled at $70.25, up $0.01 or +0.01%.

Iraq Exports Shutdown, U.S. Inventory Decline Tighten Oil Supply

The shutdown of Iraq’s northern exports and a decline in U.S. crude inventories, gasoline, and distillate stocks added to the tightness in the supply of oil, providing further support to its prices.

The upcoming U.S. inflation report to be released on Wednesday is being closely monitored by investors as it could indicate the near-term trajectory for interest rates.

Saudi Aramco to Supply Full May Crude Volumes to Asia Despite Output Cut

Saudi Aramco will supply full crude contract volumes loading in May to several North Asian buyers, despite its commitment to output cut by 500,000 barrels per day. This move follows OPEC+’s surprise announcement of an extra output cut of 1.16 million barrels per day from May for the rest of the year. The move by Saudi Aramco was closely watched by investors as an indicator of potential supply tightening in Asia, the world’s biggest crude import market.

ADNOC to Supply Full June Crude Volumes to Asia Amid Optimism for China’s Oil Demand

In addition, Abu Dhabi National Oil Company (ADNOC) has informed at least three buyers in Asia that it will supply full contractual volumes of crude in June. Despite concerns over weaker oil demand, some investors are optimistic about a potential recovery in China’s oil demand, which could potentially push prices towards $100 a barrel in the second half of the year.

Daily June WTI Crude Oil Technical Analysis

The main trend is up according to the daily swing chart. A trade through the Jan. 23 main top at $82.98 will reaffirm the uptrend. A move through $64.58 will change the main trend to down. The prolonged move up puts the market inside the window of time for a potentially bearish closing price reversal top.

The market is currently trading on the weak side of a short-term retracement zone at $78.06 – $75.49, making it support.

Daily June WTI Crude Oil Technical Forecast

Trader reaction to a minor pivot at $80.75 is likely to determine the direction of the June WTI crude oil market on Monday.

Bullish Scenario

A sustained move over $80.75 will indicate the presence of buyers. The first upside target is last week’s high at $81.81, followed by $82.98. The latter is a potential trigger point for an acceleration to the upside with the Nov. 7, 2022 main top at $86.40 the next major target.

Bearish Scenario

A sustained move under $80.75 will signal the presence of sellers. This could trigger a quick break into the short-term Fibonacci level at $78.06.