OIL PRICE FORECAST:
The oil recovery is currently up 7%+ from last week’s lows, with $80 a barrel now in sight. Speculation continues to mount around further supply cuts from OPEC+ as the organization meets later this month. Despite possible technical hurdles, sentiment and OPEC concerns continue to keep bulls interested. To learn more about price action, chart patterns, and moving averages, check out the DailyFX Education Section.
Oil prices continued their strong recovery from last Friday, gaining around 2.7% at the time of writing. The rally began on concerns about fresh sanctions on Russian oil by the EU and speculation around further OPEC cuts. Markets have not been so bearish on oil prices in a while, as a global slowdown has emboldened bears of late. However, 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+ is set to meet later this month, during which time there will likely be discussions on increasing the supply of oil. There is belief that more supply cuts may be needed to maintain oil prices above the $80 a barrel mark. OPEC had initially faced backlash when they started the supply cuts, but they have been vindicated given the macro environment and movements in oil prices throughout 2023.
There has been some impact on oil prices today following the news that the UAE will be allowed to increase the 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. Despite this, the market still fears production cuts from other member states.
Further adding to the bearish narrative is the Venezuela conundrum. The South American nation 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, as there has been 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, which was the first gain in 3 weeks. This usually serves as an indicator for future output, and it will be interesting to see if the rig count continues to improve.
From a technical perspective, WTI and Brent have rallied today, both up around 2.7%. The technicals hinted at a recovery today as Friday’s daily candle closed 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, 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. 80% of traders are currently long. Given the contrarian view to client sentiment at DailyFX, are Oil prices destined to return to the $70 a barrel mark?
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Written by: Zain Vawda, Market Writer for DailyFX.com
Contact and follow Zain on Twitter: @zvawda.
