Crude oil forecast: WTI path remains bearish as election risks loom

Crude oil forecast: Oil prices have shown some recovery, bouncing over 1% in early Monday trading, before easing a little off their earlier highs. However, after last week’s steep 9% decline, the broader outlook remains bearish, especially while WTI crude stays below the critical $70 mark. Could oil prices dip toward $65 in the days ahead?

Middle East Tensions and market impact

Last week saw significant developments, and they may continue to influence oil prices in the near term. Middle East tensions simmered, but with Israel holding off on striking Iran, oil prices retreated. While Israel's continued actions in Lebanon are fuelling concerns over potential supply disruptions, oil hasn’t yet followed the path of precious metals, like gold, which surged to new highs.

Meanwhile, economic news has also been a factor. The European Central Bank cut interest rates by 25 basis points, sticking to a dovish stance. CPI data from the UK, Eurozone, and Canada came in lower than expected, while US retail sales surprised to the upside. In China, more stimulus measures, including cuts to lending rates, have been rolled out in an attempt to revive growth, following weak economic figures.

US presidential election and crude oil forecast

In this market landscape, traders must stay vigilant. All asset prices are now more vulnerable to sharp movements, with many looking ahead to the US presidential election. Donald Trump has signalled a desire to boost US oil production, which could flood the market with additional supply if he wins, adding downward pressure on prices. This comes as OPEC+ is expected to release some of its withheld supplies. Against this backdrop, the oil market is likely to remain subdued at least until the election uncertainty is out of the way.

Technical analysis for WTI crude oil forecast

Source: TradingView.com

From a technical perspective, crude oil remains in a precarious position. Despite today’s modest rebound, oil bulls are struggling to defend key levels, with support at $71.80, $70.00, and $69.50 all failing last week. These former support levels now serve as resistance, and traders will be watching the $70 zone for potential trading opportunities. Any bearish reversal around this level could lead to further downside momentum.

As for support, the $68.00 level is a crucial zone to monitor. While this area has held firm over the past couple of years, albeit with brief breakdowns, there’s growing concern that global economic weakness and increasing oil supply might change that. If the $68.00 level is breached decisively, it could trigger a sharp drop towards $65.00, as stops below recent lows at $66.33 and $65.27 come into play.

Crude oil forecast: risks skewed to the downside

The overall trend for crude oil remains bearish. Lower highs, a descending trendline since the September 2023 peak, and declining 21- and 200-day moving averages all suggest that prices are more likely to head lower. While short-term rebounds can’t be ruled out, the path of least resistance appears to be to the downside. Traders should approach with caution, as further declines toward $65.00 could materialise if recently-tested support levels fail to hold.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R