Crude oil forecast: WTI rallies following stronger GDP data

As well as oil prices, we have seen a rebound across asset classes following the publication of US GDP and core durable goods orders, which surprised to the upside, while today’s inflation indicators were weaker. In addition, China’s central bank surprised the market for a second time this week by conducting an unscheduled lending operation at steeply lower rates overnight. This week’s moves by the PBOC shows authorities there are willing to unleash bold stimulus measures to support an economy which has lost momentum. What’s more, let’s not forget that US crude oil inventories, released the day before, showed another large drawdown. US oil stocks data have now surprised with larger or unexpected drawdowns for the fourth consecutive week. All these factors have helped to alleviate demand concerns somewhat, reducing the pressure on oil prices. After today’s reversal-looking price candle, our crude oil forecast has turned modestly bullish.

Crude oil forecast: GDP, crude oil stocks alleviate demand concerns

As mentioned, today’s US data was mixed but with the headline GDP beating expectations with a print of 2.8% annualised growth for Q2, the recovery was stronger than previously thought between April to June. The more up-to-date data showed jobless claims rising more than expected and core durable goods numbers were stronger (unless you count transportation in which case the data looked horrible).

On Wednesday, we also had another larger-than-expected drawdown in US oil stocks to the tune of 3.7 million barrels on the headline front. Stocks of oil products (gasoline and distillates) and crude inventories at Cushing all showed drawdowns too. The headline 3.7 million drop comes on the back of a 4.9m drop the week before, which followed falls of 3.4m and 12.2m in the preceding weeks. This week’s oil inventories data helped to slow the pace of the oil price drop, and today we have seen a complete reversal in the trend with the help of a stronger GDP report.

WTI technical analysis

Source: TradingView.com

After falling sharply in the last few days, crude oil prices were trying to form support as WTI tested the technically-important area around $76.00. This area had been a pivotal zone in May and June, and once again it proved significant. At the time of writing, WTI was hovering around the $78.00 level, with the 200-day average sitting slight above it. The shape of today’s candle, a hammer, is potentially a bullish reversal candle, boosting the crude oil forecast. That said, we will need to see some upside follow-through for confirmation in the days ahead. Potential resistance comes in around the $80.00 – $80.65 area where previously oil had found support and resistance.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R