Oil Price Forecast: Weaker Despite Tighter Supply and Demand; Debt Default Concerns Weigh

Oil Highlights

• Oil prices decline despite expectations of tighter supply and demand.
• Memorial Day holiday and summer fuel season affect market dynamics.
• Debt default concerns limit significant gains in oil prices.

Oil Overview

On Tuesday, the price of U.S. benchmark WTI crude oil is declining despite market expectations of a tighter supply and demand situation. Concerns about the potential risk of a U.S. debt default are limiting significant gains in oil prices. Additionally, the typical increase in gasoline demand during the Memorial Day holiday, marking the start of the high-demand summer fuel season, is contributing to the market dynamics. Furthermore, the supply cuts implemented by OPEC+ producers are playing a role in the anticipated market tightening.

At 07:23 GMT, WTI Oil is trading $72.00, down $0.29 or -0.40%. On Monday, the United States Oil Fund ETF (USO) settled at $63.91, up $0.01 or +0.02%.

Oil Prices Surge on Optimistic Forecasts

Yesterday, oil prices increased by 1%, driven by the rise in U.S. gasoline futures and optimistic forecasts for oil demand in the second half of the year. U.S. gasoline futures experienced significant price movement, reaching a one-month high of $2.6489 per gallon. This increase aligns with the upcoming Memorial Day holiday, which marks the start of the peak summer driving season and contributes to the rise in oil prices.

Last week, the WTI benchmark experienced a 2% gain, marking the first weekly rise in five weeks. This increase was attributed to the disruption of crude supply caused by wildfires in Alberta, Canada.

US Strategic Oil Purchase Tightens Market

The US Department of Energy plans to buy 3 million barrels of oil in August to refill the Strategic Petroleum Reserve, which will tighten the oil market. Goldman Sachs analysts predict ongoing oil supply deficits from June due to OPEC+ production cuts and rising demand. Asia is expected to drive oil demand growth, adding around 2 million bpd in the second half of the year.

Debt Ceiling Talks Impact Oil

Investors are closely monitoring the negotiations regarding the U.S. debt ceiling, as a potential default would have severe repercussions for financial markets and fuel demand growth domestically and globally. However, a positive resolution of the debt ceiling issue could lead to an upward movement in oil prices.

IEA Warns of Impending Oil Shortage

The International Energy Agency (IEA) recently warned of an impending oil shortage in the second half of the year. It projects demand to outpace supply by almost 2 million bpd according to their monthly report. A senior executive at Vitol also emphasized Asia’s role in leading oil demand growth. He see it potentially causing supply shortages and subsequent price increases.

Technical Analysis

WTI Oil is trading on the weakside of $72.57 (S1), making it new resistance. Overtaking, $72.57 (S1) will signal the return of buyers. Generating enough upside momentum could drive the market into the major pivot at $78.02.

A sustained move under $72.57 (S1) will indicate the selling pressure is getting stronger. If this creates enough downside momentum then look for the selling to possibly extend into $68.49 (S2) over the near-term.

Resistance & Support Levels