OPEC+ Boosts Oil Prices But Downside Risk Remains

April West Texas Intermediate (WTI) crude oil futures have seen varied movements in the past week, influenced by a range of global factors. The interplay of U.S. crude inventories, OPEC+ production decisions, fluctuating demand from China, Middle East tensions, the U.S. dollar's value, and anticipations of the Federal Reserve's policy have all played roles in shaping crude oil prices.

OPEC+ Production Strategy

OPEC+, with Saudi Arabia and Russia at the forefront, has extended its voluntary oil output reduction of 2.2 million barrels per day into the second quarter of 2024. Saudi Arabia's continuation of its 1 million bpd cut, keeping its output around 9 million bpd, and Russia's additional cut of 471,000 bpd, were significant steps. These moves underscore OPEC+'s strategy to control the oil supply in a market with unpredictable demand. The cumulative cuts since 2022 by OPEC+ now stand at approximately 5.86 million bpd, nearly 5.7% of global daily demand.

U.S. Energy Information Administration (EIA) Report

The U.S. EIA report revealed that crude inventories increased by 1.4 million barrels to 448.5 million barrels in the week ending March 1, less than the forecasted 2.1 million-barrel rise. In contrast, gasoline stocks fell sharply by 4.5 million barrels to 239.7 million barrels, and distillate stockpiles decreased by 4.1 million barrels to 117 million barrels. These figures suggest a strengthening in fuel demand and refining activity, which could support WTI prices.

China's Market Influence

China's crude oil import growth, rising by 5.1% year-over-year in the first two months of 2024, contrasts with a general decline in overall imports, indicating a reluctance to pay premium prices for oil. Total imports were reported at 88.31 million metric tons, or about 10.74 million bpd. Despite recovering trade figures, China's hesitancy in oil imports presents a complex influence on the global oil demand.

Federal Reserve's Policy Anticipation

Federal Reserve Chair Jerome Powell indicated a guarded approach toward interest rate changes. Powell suggested potential rate cuts later in 2024, provided inflation aligns with the Fed's 2% target. This speculation on monetary policy is a significant factor for investor sentiment and affects commodity markets, including crude oil.

Weekly Technical Analysis

Weekly April WTI Crude Oil

Trend Indicator Analysis

The main trend is up. The next upside target on the trend indicator chart is $85.75. A move through the main bottom at $71.49 will change the trend to down.

Retracement Level Analysis

The contract range is $38.90 to $89.19. Its retracement zone at $64.05 to $58.11 is the major support zone. This area stopped the selling the week-ending March 27, 2023 at $65.00 and the week-ending June 16, 2023 at $65.41. This is a major long-term value zone.

The intermediate range is $58.85 to $89.19. Its retracement zone at $77.10 to $79.95 is resistance. The market is currently testing this area.

The minor range is $65.00 to $85.75. Its retracement zone is $75.38 to $72.93. Based on this week’s price action, this zone is new support.

The market has been straddling both the intermediate and minor retracement zones for nearly a year.  

Weekly Technical Forecast

The direction of the April WTI crude oil market the week-ending March 15 is likely to be determined by trader reaction to the intermediate 61.8 % level at $79.95 and the 50% level at $77.10. Holding between these levels will create a rangebound trade and indicate indecision or the absence of a catalyst to drive investor sentiment.

Bullish Scenario

A sustained move over $79.95 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see an acceleration to the upside with the main top at $85.75 the next target. There is little resistance on the weekly chart until this level.

Bearish Scenario

A sustained move under $77.10 will indicate the presence of sellers. This could drive the market into the minor retracement zone at $75.38 to $72.93.

Short-term Forecast

WTI crude oil's current market condition reflects a balance between positive and negative forces. Bullish elements include the OPEC+ cuts and Middle East tensions, particularly concerning Red Sea shipping routes. On the other hand, bearish aspects encompass China's reduced import enthusiasm and possible increased supply from non-OPEC+ countries like the United States, Brazil, and Guyana. The IEA anticipates a global oil supply rise to a record 103.8 million bpd in 2024, largely from these nations.

Traders should be aware of these influencing factors in a market that has seen restrained price movements due to these conflicting forces. While OPEC+'s supply strategy supports prices, uncertainties in demand, particularly from China, along with increased supply from other nations, moderate the upward price trends.

In the short term, WTI crude oil futures could see a modest rise, driven by OPEC+ cuts and geopolitical tensions. However, vigilance is necessary regarding China's demand trends and global economic conditions, especially with potential shifts in Federal Reserve policy. The market's direction in the coming week may hinge on significant updates in these areas, requiring a responsive trading approach.