The release of U.S. inflation data suggesting a nearing peak in interest rates has brought relief to the world's largest economy. Modest consumer price increases in June, coupled with the smallest annual rise in over two years, have alleviated concerns about potential interest rate hikes by the Federal Reserve. This positive development has set the stage for a remarkable rally in September WTI crude oil, driven by supply cuts from major producers and a favorable demand outlook.
Bullish Supply Outlook
Oil prices have surged by an impressive 12% in just two weeks, fueled by significant supply cuts from Saudi Arabia and Russia. These production reductions have effectively tightened the market, as evidenced by the rise in the premium of front-month Brent contracts to future contracts. This success in market support by OPEC has played a crucial role in shifting investor sentiment away from bearish sentiments. Furthermore, Saudi Arabia's decision to extend its unilateral production cut has bolstered investor confidence and contributed to a more positive outlook.
Demand Outlook and Tight Market Conditions
Investor confidence in crude oil has been revitalized, leading to increased investments, particularly in petroleum futures and options contracts. This shift in sentiment has played a vital role in alleviating extreme pessimism that gripped the market at the end of June. The oil market is expected to maintain its tightness in the coming months due to robust…
The release of U.S. inflation data suggesting a nearing peak in interest rates has brought relief to the world's largest economy. Modest consumer price increases in June, coupled with the smallest annual rise in over two years, have alleviated concerns about potential interest rate hikes by the Federal Reserve. This positive development has set the stage for a remarkable rally in September WTI crude oil, driven by supply cuts from major producers and a favorable demand outlook.
Bullish Supply Outlook
Oil prices have surged by an impressive 12% in just two weeks, fueled by significant supply cuts from Saudi Arabia and Russia. These production reductions have effectively tightened the market, as evidenced by the rise in the premium of front-month Brent contracts to future contracts. This success in market support by OPEC has played a crucial role in shifting investor sentiment away from bearish sentiments. Furthermore, Saudi Arabia's decision to extend its unilateral production cut has bolstered investor confidence and contributed to a more positive outlook.
Demand Outlook and Tight Market Conditions
Investor confidence in crude oil has been revitalized, leading to increased investments, particularly in petroleum futures and options contracts. This shift in sentiment has played a vital role in alleviating extreme pessimism that gripped the market at the end of June. The oil market is expected to maintain its tightness in the coming months due to robust demand from countries like China and other developing nations. Fatih Birol, the chief of the International Energy Agency (IEA), highlights the resilience of oil demand in China and developing countries, even amidst sluggish economic growth. With tightening supply and strong demand, the stage is set for a tight market in the second half of the year.
Positive Reports and Growth Outlook
Reports from the International Energy Agency (IEA) and OPEC have contributed to the positive sentiment surrounding oil prices. The IEA predicts record-high oil demand this year, primarily driven by China and India. Although slightly lower than previously anticipated due to economic headwinds and potential interest rate hikes, the positive outlook remains reinforced. Similarly, OPEC's report maintains an optimistic perspective on world oil demand, raising its growth forecast for 2023 and expecting only a slight slowdown in 2024. The expansion in fuel consumption in China and India is expected to be the driving force behind this growth.
Concerns and Future Demand Assessment
While the oil market remains optimistic, concerns have emerged regarding China's post-pandemic recovery. The country's momentum has slowed, with exports contracting at the fastest pace in three years, potentially indicating a slowdown in the world's second-largest economy. Such a development could impact oil demand, and as a result, market participants will closely monitor the release of U.S. Consumer Price Index data and economic reports from China to assess the future demand for oil.
Favorable Market Conditions and Robust Demand
The recent U.S. inflation data and supply cuts from major oil producers have created favorable market conditions for a remarkable rally in oil prices. Investor confidence has been rejuvenated, and the market outlook is positive, fueled by robust demand from China and developing nations. With the extension of production cuts and ongoing increase in oil demand, the short-term forecast remains bullish. However, concerns regarding China's post-pandemic recovery raise caution as they could impact oil demand. Market participants will closely monitor economic indicators to gauge the future direction of oil prices.
Weekly Technical Analysis
Weekly September WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart. A move through $81.44 will change the main trend to up. A trade through $64.22 will reaffirm the downtrend.
Retracement Level Analysis
The contract range is $37.66 to $96.50. Its retracement zone at $67.08 to $60.14 is the major support. The price action over the past 17 weeks solidifies this area's importance. Furthermore, the price action during that time period clearly indicates a tendency by investors to "buy the dip".
The minor range is $81.44 to $64.22. Its retracement zone is $72.83 to $74.86. This week the buying was strong enough to overtake this zone, turning it into support.
The intermediate range is $96.50 to $64.22. If the upside momentum continues then look for a surge into its retracement zone at $80.26 to $84.07.
Weekly Technical Forecast
The direction of the September WTI crude oil market the week-ending July 21 is likely to be determined by trader reaction to the minor Fibonacci level at $74.86 and the 50% level at $72.83.
Bullish Scenario
A sustained move over $74.86 will signal the presence of aggressive counter-trend buyers. This price is a potential trigger point for an acceleration to the upside with $80.26 the next major target price.
Bearish Scenario
A sustained move under $72.83 will signal the presence of sellers. If this fails then look for a possible acceleration into the 50% level at $67.08.
Short-Term Forecast: Bullish Momentum
Looking ahead, the extension of Saudi Arabia's output cut and Russia's reduction in crude exports throughout August are anticipated to provide further support to oil prices. The commitment of OPEC+ to maintain production cuts, along with China's better-than-expected economic rebound, are viewed as potential upside factors for the market. These proactive measures, combined with the ongoing increase in oil demand, continue to drive the upward momentum of oil prices.
Technically speaking, the September WTI crude oil market has a chance to rally into $80.26 to $84.07 over the near-term, if support can be established at $74.86 to $72.83.