Ahead of the upcoming OPEC+ meeting, July WTI oil prices saw a significant increase on Thursday, offsetting rising inventories in the US. The passing of a bill to suspend the US debt ceiling by the House of Representatives also contributed to the positive sentiment. However, overall market performance for the week remained lower.
The successful debt ceiling negotiations brought some relief, but the demand outlook for crude oil remains uncertain. The focus now shifts to the June 4 OPEC+ meeting, which has prompted caution due to a warning from the Saudi energy minister.
Unexpectedly, US crude oil stockpiles rose last week due to increased imports and a decline in strategic reserves to their lowest level in decades, according to Energy Information Administration data.
The market is currently experiencing a balancing act between seasonal and cyclical factors, which could lead to more aggressive actions from OPEC+. Traders are closely monitoring the strength of summer demand in developed countries compared to China's cyclical recovery to gauge OPEC+'s effectiveness moving forward.
Debt Relief Bill Boosts Crude Oil Market Stability
The passing of the debt relief bill in the House could have implications for the crude oil market. By raising the debt limit and capping government spending, the bill aims to avert a potential U.S. default. This outcome is significant for the crude oil market as it helps maintain stability and investor confidence in the overall…
Ahead of the upcoming OPEC+ meeting, July WTI oil prices saw a significant increase on Thursday, offsetting rising inventories in the US. The passing of a bill to suspend the US debt ceiling by the House of Representatives also contributed to the positive sentiment. However, overall market performance for the week remained lower.
The successful debt ceiling negotiations brought some relief, but the demand outlook for crude oil remains uncertain. The focus now shifts to the June 4 OPEC+ meeting, which has prompted caution due to a warning from the Saudi energy minister.
Unexpectedly, US crude oil stockpiles rose last week due to increased imports and a decline in strategic reserves to their lowest level in decades, according to Energy Information Administration data.
The market is currently experiencing a balancing act between seasonal and cyclical factors, which could lead to more aggressive actions from OPEC+. Traders are closely monitoring the strength of summer demand in developed countries compared to China's cyclical recovery to gauge OPEC+'s effectiveness moving forward.
Debt Relief Bill Boosts Crude Oil Market Stability
The passing of the debt relief bill in the House could have implications for the crude oil market. By raising the debt limit and capping government spending, the bill aims to avert a potential U.S. default. This outcome is significant for the crude oil market as it helps maintain stability and investor confidence in the overall economy.
The bill's passage with support from both Democrats and Republicans reflects a bipartisan effort to address the debt ceiling issue. This cooperation can contribute to a more favorable environment for economic growth, which, in turn, can positively impact the demand for crude oil.
Moreover, the bill's passage is expected to prevent the disruption of federal funds and essential government benefits, which would have adverse effects on the economy. By avoiding such disruptions, the bill supports overall economic stability, including the energy sector.
OPEC+ Meeting: Analysts Diverge on Impact
The upcoming OPEC+ meeting on June 4 is highly anticipated due to its potential impact on oil prices. Analysts have diverse expectations, reflecting mixed signals from the alliance regarding additional production cuts.
Goldman Sachs predicts that major OPEC+ producers will maintain current production levels but may adopt a more assertive tone. However, if oil prices remain below $80 per barrel in the second half of the year, further cuts could be considered.
HSBC anticipates a cautious approach from OPEC+, monitoring the effects of recent cuts before making further adjustments. If the expected deficit doesn't materialize during the summer, additional cuts may be implemented.
Crude analyst Viktor Katona believes OPEC+ will likely lean towards cutting production, acknowledging the challenge of reducing supply amid high demand and declining production.
RaboBank expects OPEC+ to stay on track with the April cuts, viewing a second cut as a bearish signal unless it is substantial. Barclays' analyst Amarpreet Singh highlights OPEC+'s proactive stance to prevent a surplus, projecting a supply deficit in the second half of the year.
Jorge León from Rystad Energy suggests that OPEC+ could temporarily reduce output to support prices, considering the limited response from US shale production. Bill Weatherburn from Capital Economics believes OPEC+ is unlikely to alter its output target due to existing supply constraints. Further cuts may not lead to a significant price rebound, considering uncertainties surrounding Russia's compliance.
Overall, the market eagerly awaits the OPEC+ meeting to gain insights into the alliance's stance and its potential impact on oil prices.
Surprise Increase in US Crude Oil Stockpiles
U.S. crude oil stockpiles unexpectedly increased last week, primarily due to a significant rise in imports, according to the Energy Information Administration (EIA). Crude inventories rose by 4.5 million barrels, contrasting with analysts' expectations of a 1.4 million-barrel decrease. The surge in imports played a major role in the inventory buildup.
Crude stocks at the Cushing, Oklahoma delivery hub also experienced an increase of 1.6 million barrels during the week. Refinery crude runs rose by 96,000 barrels per day, while refinery utilization rates climbed by 1.4 percentage points.
On the other hand, gasoline stocks declined by 200,000 barrels, slightly below the expected 500,000-barrel decrease. The four-week average for gasoline demand reached its highest level since December 2021.
Distillate stockpiles, which include diesel and heating oil, rose by nearly 1 million barrels, slightly surpassing the projected 900,000-barrel increase.
Weekly Technical Analysis
Weekly July WTI Crude Oil
Trend Indicator Analysis
The main trend is down according to the weekly swing chart. A trade through $63.90 will reaffirm the downtrend. A move through $82.91 will change the main trend to up.
Retracement Level Analysis
The contract range is $37.18 to $99.09. Its retracement zone at $68.13 to $60.83 is the major support. The market tested this area successfully three weeks ago at $63.90 and again this week at $67.03. The price action over the past three months indicates that this area is a value zone.
The minor range is $82.91 to $63.90. Its retracement zone at $73.41 to $75.65 is resistance. It stopped the rally the previous week at $74.73. The market would have to overcome this zone to get excited about the upside potential.
Weekly Technical Forecast
The direction of the July WTI crude oil market the week-ending June 9 is likely to be determined by trader reaction to the minor 50% level at $73.41.
Bullish Scenario
A sustained move over $73.41 will signal the presence of buyers. This could lead to a quick test of the minor Fibonacci level at $75.65. Overcoming this level could trigger an acceleration to the upside.
Bearish Scenario
A sustained move under $73.41 will signal the presence of sellers. This could lead to a retest of the major 50% level at $68.13. This level has to hold or prices could collapse into the support cluster at $63.90 - $60.83.
Short-Term Outlook
The short-term outlook for crude oil is uncertain with both bullish and bearish factors at play. On the bullish side, the significant increase in July WTI oil prices on Thursday ahead of the OPEC+ meeting and the passing of the US debt ceiling bill provide positive sentiment. These developments offset the impact of rising inventories in the US. Additionally, the caution surrounding the OPEC+ meeting indicates the potential for supportive measures to stabilize prices.
However, there are bearish factors as well. The overall market performance for the week remained lower, reflecting the uncertain demand outlook for crude oil. The unexpected rise in US crude oil stockpiles due to increased imports and low strategic reserves also weighs on the market.
The market is currently influenced by a tug-of-war between seasonal and cyclical factors, which could lead to more aggressive actions from OPEC+. Traders are closely watching the strength of summer demand in developed countries and China's cyclical recovery to assess OPEC+'s effectiveness in balancing the market.
Considering these factors, the short-term outlook for crude oil leans towards uncertainty, with both bullish and bearish forces influencing the market.
Technically, the main trend may be down, but there is significant evidence that buyers are attracted to the value zone at $68.13 - $60.83, which remains the major support.