Oil Price Forecast: Recovery Continues as Expectations for OPEC Cuts Grow
Oil prices have continued their strong recovery from last Friday with gains of around 2.7% at the time of writing. Friday saw the rally begin largely on concerns of the fresh sanctions package by the EU on Russian Oil and continued this morning as speculation around further OPEC cuts grow.
OPEC + TO INTRODUCE FURTHER CUTS?
Markets have not been so bearish on Oil price in a while as a global slowdown has emboldened bears of late. Having said that there is also growing speculation that further supply cuts may be on the way with OPEC looking to maintain stability and keep Oil prices above the $80 a barrel mark.
OPEC+ meets later this month and according to a source the group do believe that more may be needed to maintain Oil prices above the $80 a barrel mark. OPEC faced backlash when they initially started the supply cuts, however they have been vindicated given the macro environment and movements in Oil prices throughout 2023. Surprisingly we heard today that the UAE will be allowed to increase supply of Oil under terms of the current deal. Abu Dhabi is poised to increase output after winning a concession at the group’s most recent meeting in June. Abu Dhabi argued that long-standing production limits failed to account for capacity additions made in recent years. This has surprisingly had little impact on the Oil price today as market still fear production cuts from other member states.
Further adding to a bearish narrative is the Venezuela conundrum. The South American nations continues to make moves to boost production after the lifting of sanctions and could return to decent levels of production in 2024 which could add a further challenge to supply and demand dynamics.
LOOKING AHEAD TO THE REST OF THE WEEK
Inventories will likely be key this week as we have seen a slight uptick in stockpiles of late which contributed to the recent selloff. Last week also saw an increase in the number of Oil rigs operated by US companies rose last week, this was the first gain in 3 weeks. This usually serves as an indicator for future output, and it will thus be interesting to see if the rig count continues to improve.
TECHNICAL OUTLOOK AND FINAL THOUGHTS
From a technical perspective both WTI and Brent have rallied today, both up around 2.7%. The technicals did hint at a recovery today as Friday’s daily candle did close as a bullish inside bar. Despite a gap lower over the weekend Oil prices continued to rise with WTI now running into resistance provided by the 200-day MA resting around 78.13.
Looking at structure and we remain bearish overall with a daily candle close above the 78.55 mark needed to confirm a change in structure. This would be a good sign that we could push higher and reclaim the $80 a barrel mark, with a failure to do so likely leading to a retest of the recent lows or a potential fresh low around the 70.12 support area.
Key Levels to Keep an Eye On:
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Support levels:
Resistance levels:
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