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

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Updated: Apr 17, 2023, 07:39 GMT+00:00

Oil traders eyeing OPEC+ output cuts and Chinese demand amid rising costs and weaker margins. IEA projects record demand, but concerns persist.

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

The IEA has warned that the output cuts announced by OPEC+ producers could potentially worsen the oil supply deficit expected in the second half of the year, which may harm consumers and the global economic recovery.

The report also stated that rising costs of Middle East crude supplies are already affecting refiners’ margins, leading them to look for alternative sources. Refiners are also preparing for peak summer demand by increasing gasoline output while reducing diesel production, given the worsening margins.

Despite market tightening expectations, demand concerns still exist, particularly for middle distillates, due to weaker refinery margins.

Iraq-Turkey Oil Exports Suspended, China GDP and US earnings to Impact Commodity Prices

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

Daily WTI Oil

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:

R1 – $82.525	S1 – $73.892
R2 – $89.476	S2 – $66.941
R3 – $98.109	S3 – $63.501

Short-Term Outlook

WTI oil prices are mixed after earlier gains, while the IEA warns OPEC+ output cuts could worsen the oil supply deficit. Technicals suggest an upside potential for WTI oil. Investors are looking at China’s Q1 GDP data and U.S. company earnings to gain insights into the Fed’s policy direction and dollar trajectory, while the strengthened greenback and interest rate hikes are making dollar-denominated oil more expensive.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James Hyerczykauthor

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.