Oil Price Forecast / Update: Showing Early Strength Despite Uncertainty Over Inflation, Fed Rate Hikes

Highlights

• Oil prices increase due to the possibility of the Fed ending interest rate hikes
• U.S. consumer price index is expected to report high inflation in March
• IMF lowers global growth forecast, puts oil demand at risk

Overview

U.S. West Texas Intermediate crude oil futures are inching higher Wednesday, as traders await the release of a report on March’s U.S. consumer inflation data later today. The report is expected to have an impact on the Federal Reserve’s interest rate decision in May and the greenback, which will ultimately affect foreign demand for dollar-denominated crude oil.

At 07:05 GMT, June WTI crude oil is trading $81.55, up $0.06 or +0.07%. On Tuesday, the United States Oil Fund ETF (USO) settled at $71.07, up $1.31 or +1.88%.

Fed May Be Nearing End of Rate Hikes

Oil prices have been rising due to the perception that the U.S. Federal Reserve may soon end its interest rate hike cycle, which would make dollar-priced oil more affordable for buyers holding other currencies. The increase in oil prices was further supported by an unexpected decline in U.S. crude inventories in the previous week, according to data released by the Energy Information Administration.

Fed Officials Divided over Rate Hike Outlook

However, the market is anticipating a rise in inflation, which could lead to another rate hike in June. The U.S. consumer price index is expected to report a monthly core inflation rise of 0.4% and a year-on-year increase of 5.6% in March.

The President of the Philadelphia Federal Reserve Bank, Patrick Harker, expressed his belief that the U.S. central bank may be done with raising interest rates soon. Meanwhile, Neel Kashkari, the President of the Minneapolis Federal Reserve Bank, predicts that inflation will drop to the mid-threes by the end of the year.

API: Reports Unexpected Increase in Crude, Gasoline Inventories

In terms of inventory levels, the American Petroleum Institute reported an unexpected increase in crude and gasoline inventories, which could pressure oil prices in the short term. The U.S. government will release its stockpile data on Wednesday, with analysts forecasting a 1 million barrel crude oil draw.

IMF Lowers Global Growth Forecast

The International Monetary Fund lowered its 2023 global growth forecast on Tuesday, citing the consequences of increased interest rates, which could have a negative impact on oil demand. This, coupled with the upcoming monthly reports from OPEC and the IEA, is expected to provide further clarity on oil demand and supply.

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.

The minor trend is also up. Taking out $79.40 will change the minor trend to down. This will also shift momentum to the downside.

The minor range is $81.81 – $79.40. The market is trading on the strong side of its pivot at $80.61, making it support. The major support is the retracement zone at $78.06 – $75.49.

Daily June WTI Crude Oil Technical Forecast

Trader reaction to the minor pivot at $80.61 is likely to determine the direction of the June WTI crude oil market on Wednesday.

Bullish Scenario

A sustained move over $80.61 will indicate the presence of buyers. This could trigger a surge into $82.98. Overtaking this level could lead to an acceleration to the upside with $86.40 the next major target.

Bearish Scenario

A sustained move under $80.61 will signal the presence of sellers. Taking out $79.40 will indicate the selling is getting stronger with $78.06 – $75.49 the next downside target.