Oil Prices Stage a Comeback After Hitting Six-Month Low

This week, the oil market witnessed a significant rebound, driven by a confluence of factors including a weaker dollar and revised demand forecasts from major energy organizations. After a period of decline that saw prices reaching a six-month low, the market's recovery highlights its dynamic nature and sensitivity to global economic indicators.

Revised Forecasts from IEA, OPEC, and EIA

The International Energy Agency (IEA) has updated its oil demand forecast for 2024, projecting an increase in global consumption by 1.1 million barrels per day (bpd). This adjustment, which cites an improved outlook for the U.S. economy and the influence of lower oil prices, marks a significant shift from the IEA's previous stance.

Contrastingly, the Organization of the Petroleum Exporting Countries (OPEC) maintains a more bullish forecast, anticipating a much larger increase in demand.

Meanwhile, the U.S. Energy Information Administration (EIA) has moderated its price forecast for Brent crude in 2024 to $83 per barrel, reflecting a nuanced perspective on global supply and demand dynamics.

This divergence in forecasts by major agencies underscores the ongoing debates and uncertainties in predicting future oil market trends.

Federal Reserve's Influence on Oil Prices

The recent developments in the oil market are also closely tied to the monetary policy signals from the U.S. Federal Reserve. The Fed's indication of a potential reduction in borrowing costs by 2024 has contributed to the weakening of the dollar. This, in turn, makes oil more affordable for international buyers, potentially stimulating demand. The Fed's dovish stance, combined with an adjusted inflation forecast, suggests a more favorable economic environment for the oil sector in the coming year.

Market Outlook and Analyst Predictions

Looking ahead, several factors are set to shape the oil market's trajectory. While the updated forecasts inject a degree of optimism, concerns about global economic growth, potential oversupply, and geopolitical tensions in key oil-producing regions continue to pose risks to stability.

Some analysts are currently predicting that Brent crude will average around $84.43 a barrel in 2024, slightly higher than this year's average. This projection is influenced by a range of factors, including the anticipated impact of OPEC+'s production cuts and the overall economic climate.

Weekly Technical Analysis

Weekly February WTI Crude Oil

Trend Indicator Analysis

The main trend is down according to the weekly swing chart. The main trend turned down the week-ending November 10th when sellers took out the last main bottom at $76.43.

One potential downside target is the main bottom at $64.24. Taking out this level will reaffirm the downtrend. The trend will change to up on a move through $88.21. A trade through $91.14 will reaffirm the uptrend.

Retracement Level Analysis

The contract range is $38.63 to $91.14. Its retracement zone at $64.89 to $58.69 is the major support zone. This area stopped the selling the week-ending March 24 at $64.24 and the week-ending May 5 at $65.24. This is a major long-term value zone.

The intermediate range is $41.44 to $91.14. Its retracement zone at $66.29 to $60.43 is additional support. A second intermediate range is $58.90 to $91.14. Its retracement zone support is $70.75 to $65.94.

Combining the two intermediate 50% levels creates a third support zone at $70.75 to $66.29. This area held as support the week-ending December 15 at $67.98.

The minor range is $88.21 to $67.98. Its retracement zone at $78.10 to $88.21 is the next potential upside target area.

Closing Price Reversal Bottom Alert

Following the prolonged move down in terms of price and time, the market is in a position to post a closing price reversal bottom on the weekly chart. A weekly close over $71.44 will form this potentially bullish chart pattern.

Although the formation and subsequent confirmation of this chart pattern next week can produce enough upside momentum to fuel a 2 to 3 week rally, it should not be considered a change in trend.

Sometimes, it is just a relief rally that alleviates some of the downside pressure. Other times, it’s a short-covering rally that is used to set up the next selling opportunity. Nonetheless, it should be monitored carefully especially if you are short. It has the potential to drive February WTI crude oil back to $78.10 to $80.48.

Weekly Technical Forecast

The direction of the February WTI crude oil market the week-ending December 22 is likely to be determined by trader reaction to $71.44 and the 50% level at $70.75.

Bullish Scenario

A sustained move over $71.44 will signal the presence of strong counter-trend buyers. If this creates enough near-term momentum then look for the start of a 2 to 3 week rally with $78.10 to $80.48 a potential upside target.

Bearish Scenario

A sustained move under $70.75 will indicate the presence of strong sellers. This could create the downside momentum needed to challenge a support cluster at $66.29 to $64.89. This is followed by longer-term support at $64.89 to $58.69.

Short-term Weekly Forecast: Bullish Trend with Underlying Caution

The oil market is poised for a bullish trend in 2024, buoyed by revised demand forecasts, a weaker dollar, and the Federal Reserve's monetary policy outlook. However, the contrasting views among major energy agencies, coupled with macroeconomic uncertainties and geopolitical risks, suggest a need for caution. Investors and traders in the oil market will have to navigate these diverse and sometimes conflicting signals to make informed decisions in a rapidly evolving landscape.

Technically speaking, the weekly chart pattern suggests the worst of the selling may be over and at a minimum, prices are ready to consolidate. Given the potential for a closing price reversal bottom, we’re tilted toward the upside next week. While we’re not likely to see a breakout rally, there may be enough upside momentum building to take February WTI crude oil to $78.10 over the next two to three weeks.

Furthermore, the long-term support is at $64.89 to $68.59 so that zone is the market’s safety net against a major collapse.