OPEC+ Cuts And Inventory Declines Counter Growing Demand Concerns

June WTI crude oil prices remained relatively stable on Thursday and into Friday morning but marked a third consecutive weekly increase as investors evaluated the impact of OPEC+ production cuts and falling U.S. oil inventories against concerns regarding the global economic outlook.

This week, the U.S. benchmark rose by over 6% after OPEC+ announced a commitment to reducing production. Hedge funds have been buying crude oil throughout the week, indicating a return to a "risk on" market.

US Crude Inventories Decline for Second Straight Week, Signaling Uptick in Demand

Oil prices were supported by a greater-than-anticipated decline in U.S. crude inventories for a second straight week, along with reduced gasoline and distillate inventories suggesting an uptick in demand.

Additionally, U.S. energy firms reduced the number of oil rigs for the second consecutive week, signaling a potential reduction in future output.

Concerns Over Economic Slowdown May Impact Oil Demand Despite Supply Cuts

However, U.S. labor market data pointed towards a slowdown in economic growth, and the U.S. services sector experienced slower-than-expected expansion.

There is a concern that demand destruction due to the possibility of a recession may outweigh the impact of OPEC+ cuts.

Buyers of put options were more active than buyers of call options, suggesting that traders were concerned about the possibility of falling prices. Despite the temporary pause in bullish momentum, the tightening supply context suggests that there is still potential for price increases.

Weekly Technical Analysis

Weekly June WTI Crude Oil

Trend Indicator Analysis             

The main trend is up according to the weekly swing chart. The trend changed to up on Monday when buyers took out the previous main top at $80.97. A trade through $64.58. The next upside target is the main top at $82.98.

Retracement Level Analysis

The contract range is $37.04 to $100.48. Its retracement zone at $68.76 to $61.27. The market is currently trading above this zone after a successful test of $64.58 the week-ending March 24, making it support.

The short-term range is $86.40 to $64.58. Its retracement zone at $75.49 to $78.06 is new support.

The main range is $100.48 to $64.58. If the uptrend continues then its retracement zone at $85.76 - $89.23 will be the primary upside target.

Weekly Technical Forecast

The direction of the June WTI crude oil market for the week-ending April 14 is likely to be determined by trader reaction to the short-term Fibonacci level at $78.06.  

Bullish Scenario

A sustained move over $78.06 will signal the presence of buyers. This could create the upside momentum needed to challenge the main top at $82.98

Overtaking $82.98 will indicate the buying is getting stronger with the next target the resistance cluster at $85.76 - $86.40.

Bearish Scenario

A sustained move under $78.06 will indicate the presence of sellers. This could trigger a quick break into the short-term 50% level at $75.49. Buyers could come in on the first test of this level. If it fails then look for a potential acceleration to the downside.

Short-Term Outlook

June WTI Crude Oil in Position to Extend Rally, Eyes Retracement Zone at $85.76 - $89.23

Technically speaking, the June WTI crude oil is in a good position to extend the rally, following Monday’s “gap-and-go” rally. The fun will start if we see a test of the retracement zone at $85.76 - $89.23. This area has been resistance since late July – late August and again in early November.

Sellers are likely to come in if $85.76 - $89.23 is tested, but if buyers can overtake this zone then $100 will hit the radar.

If the price falls below $75.49 again, it will fill the gap that occurred on Monday. This will not indicate a change in the trend, but it suggests that the buying that occurred this week was not strong and was mainly driven by short-covering rather than new buyers entering the market.

OPEC+ Cuts and Falling US Oil Inventories Drive Price Action, Amid Global Economic Concerns

Fundamentally, this week’s price action was mostly driven by the impact of OPEC+ production cuts and falling U.S. oil inventories. Meanwhile, there are concerns about the global economic outlook due to slower-than-expected expansion in the U.S. services sector and a potential recession, which may outweigh the impact of OPEC+ cuts.

However, reduced gasoline and distillate inventories suggest an uptick in demand, and U.S. energy firms have reduced the number of oil rigs, signaling a potential reduction in future output.

Looking ahead, the tightening supply context suggests that there is still potential for price increases, but the possibility of a recession may outweigh the impact of OPEC+ cuts.

The outcome will largely depend on the pace of the global economic recovery and how quickly demand picks up. However, the reduced oil rigs and uptick in demand may help support oil prices in the short term.

It is important to note that oil prices are volatile and subject to a range of factors, including geopolitical tensions and global energy policies.