Oil Prices Forecast: Inventory Builds and OPEC Decision Fuel Market Uncertainty

Highlights

• Oil prices edge up, clawing back from a steep drop as OPEC+ maintains output cuts.
• Saudi Arabia to hold a 1 million bpd cut until 2023, Russia curbs exports by 300,000 bpd.
• U.S. gasoline demand falters, hitting its lowest point this year, per EIA data.

Oil Prices Rebound Slightly Amid OPEC+ Decision to Hold Supply Cuts

Oil prices edged higher on Thursday, mitigating some of Wednesday’s steep declines. The rebound came after an OPEC+ ministerial panel decided to maintain existing output cuts, ensuring a tight supply. Brent crude was up 63 cents at $86.44 a barrel, while U.S. West Texas Intermediate (WTI) increased by 49 cents to $84.71.

Supply and Demand Tensions Keep Market on Edge

Wednesday saw oil prices plunge by over $5, rattled by an uncertain macroeconomic landscape and diminishing fuel demand. Despite the wobble, OPEC+—comprising OPEC countries and Russia-led allies—held its nerve, making no alterations to the group’s output policy. Saudi Arabia will continue its voluntary cut of 1 million barrels per day (bpd) through 2023, and Russia will maintain a 300,000 bpd export curb until year’s end.

Demand Uncertainties Add to Market Jitters

Negative signals are coming from the demand side as well. A survey suggested that the euro zone economy likely contracted last quarter, with consumer demand in September falling at its fastest pace in nearly three years. In the U.S., the Energy Information Administration reported a sharp week-over-week decline in gasoline demand, plummeting to an 8-million bpd low for the year.

Mixed Signals for Oil Bulls

The recent three-month rally in oil prices had been fueled by tight supply and a resilient global economy. However, bulls are now facing some turbulence as previously favorable conditions appear less robust. This sentiment is exacerbated by Wednesday’s weaker U.S. economic data and a significant build in gasoline inventories.

Short-Term Forecast: Bearish

Given the increasing demand uncertainties and unaltered OPEC+ supply policies, the short-term outlook for oil prices leans bearish. While supply constraints are unlikely to ease, demand-side indicators point toward weaker consumption, putting downward pressure on prices.

Technical Analysis

The current daily price of Light Crude Oil Futures at $84.70 hovers just below the 50-Day moving average of $84.89, suggesting a potential struggle to break higher in the near term. Meanwhile, it stands well above the 200-Day moving average of $77.51, reinforcing a generally bullish trend over a longer time frame.

On the support and resistance spectrum, the commodity trades closer to the main support level of $82.68 than to the minor resistance of $92.49. Given that the current price is nestled between these crucial points, it portrays a market in a state of equilibrium, lacking strong directional bias.

Therefore, based on this data, the current market sentiment could be described as cautiously bullish with traders probing for support and value. However, looking at the situation from a momentum standpoint, trader reaction to the 50-Day moving average is likely to set the near-term tone. If it fails as support then look for the start of another acceleration to the downside with the 200-Day moving average the next crucial target.