Oil Prices Forecast: US Strategic Reserve Refill Plans Lift WTI and Brent Crude

Highlights

• Crude oil prices rise on U.S. strategic reserve refill plans.
• Early gains countered by long-term bearish market trend.
• Potential short-term rally presents shorting opportunity.

Slight Follow-Through Rally

Crude oil prices are higher early Monday, responding to the U.S.’s initiative to replenish its strategic reserves, offsetting concerns about surplus supply and subdued demand forecasts for the coming year. Despite the early strength, the trend is still down and the market is bearish. Therefore, any rally is likely to be a short-term event and another shorting opportunity. It’s going to take time and a major event to shift sentiment enough over the short-run to drive out the stubbornly strong shorts.

Market Trends

Brent and WTI crude futures both opened the week with gains, continuing the rise from Friday. This increase comes despite the longest streak of weekly declines since 2018, highlighting ongoing oversupply concerns. The market is currently balancing these supply issues against the backdrop of uncertain demand, particularly from China.

Economic Influences

The U.S. move to add up to 3 million barrels to the Strategic Petroleum Reserve (SPR) is providing some stability. Despite this, doubts linger about the effectiveness of OPEC+’s production cuts. RBC Capital Markets forecasts a significant draw in stocks initially, but a more moderated reduction over the full year.

Geopolitical Impact

China’s economic situation, especially deflationary trends in its consumer price index, raises questions about its recovery and oil demand. Additionally, a recent meeting between Russia and Saudi Arabia focused on OPEC+ production cuts, adding another layer of complexity to the global oil market.

Short-Term Outlook

The crude oil market is facing a mix of bullish and bearish factors in the short term. The U.S. signaling of intentions to acquire up to 3 million barrels for the Strategic Petroleum Reserve (SPR) may have helped establish a bottom, but it’s going to take effective OPEC+ production cuts to tighten supply and support a rally.

However, weaker compliance, global central banks’ monetary policies, and China’s economic stability are key variables that could influence market direction.

Geopolitical developments in oil-producing regions also remain a critical factor in determining the supply trend. These elements will likely shape the trend of oil prices on Monday.

Technical Analysis

The current daily price of Light Crude Oil Futures at 71.70, marginally above the previous day’s close of 71.23, indicates a modest uptick. However, it remains below both the 50-day moving average of 79.88 and the 200-day moving average of 76.29, suggesting bearish sentiment in a broader context.

The price sits beneath the minor resistance at 72.48 and well below the main resistance at 77.43, reinforcing a bearish outlook over the medium term. The minor support level at 66.85, though not currently active, serves as a potential lower boundary.

In today’s scenario, the current price is pivotal, potentially setting a bullish tone for the day. Overall, however, despite the slight rise, market sentiment for Light Crude Oil Futures leans towards bearish in the short to medium term.