Oil Price Forecast: Traders Monitoring OPEC+ output cuts, Chinese Demand Recovery

Highlights

• Mixed performance for WTI oil on Monday
• OPEC+ output cuts and Chinese economic data to impact oil market
• Refiners facing rising crude costs and weaker margins amid peak summer demand

Overview

On Monday, WTI oil is putting in a mixed performance after giving back earlier gains. The market was higher on the opening thanks to OPEC+’s decision to reduce output. The market was also monitoring Chinese economic data to gauge whether the world’s second-largest oil consumer was experiencing a demand recovery.

At 06:58 GMT, WTI oil is at $82.317, down $0.285 or -0.34%.

Last week, oil achieved its fourth consecutive weekly gain, the longest streak since mid-2022. This was mainly attributed to the International Energy Agency’s (IEA) projection of a record demand for 2023, which is expected to reach 101.9 million barrels per day (bpd), an increase of 2 million bpd compared to the previous year.

IEA Warns OPEC+ Output Cuts May Harm Global Economic Recovery

Oil exports from northern Iraq to the Turkish port of Ceyhan have been suspended for almost three weeks following an arbitration case that found Ankara guilty of unauthorized exports and ordered compensation to be paid to Baghdad.

Meanwhile, investors are looking ahead to China’s Q1 GDP data release, which is expected to impact commodity prices positively. Additionally, U.S. company earnings will provide insights into the Federal Reserve’s policy direction and the dollar’s trajectory.

Fed Rate Hike Expectations to Impact Crude Oil Demand

The strengthening of the US dollar, fueled by interest rate hikes, is making dollar-denominated oil more expensive for holders of other currencies.

Traders are anticipating another quarter percentage point increase in the lending rate by the Federal Reserve in May and have delayed expectations of a rate cut until later this year.

Currently, the market predicts a 78% chance of a 25 basis point rate hike in May, with less than 60 basis points of cuts priced in by year-end. Consequently, some of the supportive tailwinds for crude oil demand from expectations of Fed rate cuts are starting to diminish.

Technical Analysis

From a technical view, according to the daily chart, WTI Oil is trading below the moving average at $88.726, but the RSI indicator is positive. The technicals appear to be in favor of an upside and a potential test of that $89.476 price. If the price does not reach its peak and instead has a downward trend, we may witness a decline toward the $73.892 region.

Resistance and Support lines: 

Short-Term Outlook