Crude oil forecast: WTI hits trend resistance ahead of key macro events

Crude oil prices have surged nearly 4.5% so far this week, recouping half of the losses from the month before. But it remains to be seen whether WTI will be able to climb above its bearish trend line and key resistance around $79, with the International Energy Agency lowering is demand growth forecast and continued weakness in global manufacturing data. The focus on the crude oil forecast will intensify with the release of the weekly US stockpiles data later today, as well as this week’s key macroeconomic events, namely US consumer inflation data and the Federal Reserve’s rate decision, which could heavily influence the US dollar and dollar-denominated commodities like crude oil.

What has supported oil’s recovery?

WTI oil has staged a sharp recovery after hitting key support at $72.50 on Wednesday. The rally has been driven by hopes for increased fuel demand as the US driving season progresses. We have had a couple of stronger US macroeconomic pointers including the ISM services PMI and monthly jobs report that helped to reduce fears about demand weakness. Prices also found support from oversold conditions following a three-week decline that had been fuelled by concerns over Chinese demand and rising non-OPEC supply.

Crude oil forecast: key influences on oil price trends

It is possible we could see crude oil prices come under pressure again after the recent recovery. After all, there are several factors that are likely to limit the upside potential from here, including increased non-OPEC supply, which is undermining the OPEC+ efforts to stabilise the markets. On top of that, you have uncertainties about Chinese demand, reduced expectations for US interest rate cuts, and continued weakness in global manufacturing activity. Today’s latest UK data, for example, showed a 0.9% drop in industrial output. The weaker industrial data mirrors that of the Eurozone and US we have consistently seen throughout the year. Additionally, the potential for the US dollar to remain strong could negatively impact oil market sentiment.

US CPI, FOMC rate decision and crude stockpiles report all coming up

The US dollar will be in sharp focus with the release of US CPI today and FOMC policy decision later. While the Fed is highly unlikely to cut rates at this meeting, the CPI data has the potential to move the dollar sharply should we see a sharp deviation from expectations. CPI is expected to have increased 0.1% month-over-month in May, which, if correct, should keep the year-over-year rate unchanged at 3.4%. Core CPI is expected to show another 0.3% month-over-month increases, similar to April.

Meanwhile we will also have the weekly US stockpiles report today. Last night, the American Petroleum Institute reported a 2.4 million barrel drop in US crude stockpiles ahead of the official data from the Energy Information Administration today. The EIA’s data is expected to show a 1.2-million-barrel drawdown following a similar build the week before. Given the API’s larger drop, the EIA stockpiles report will need to at least match that level now for it to be considered a bullish surprise.

IEA cuts demand outlook

Meanwhile, the International Energy Agency (IEA) has cautioned about a persistent oil surplus expected to continue throughout the rest of the decade. Additionally, the IEA has lowered its oil demand growth forecast for this year to below 1 million barrels per day. If the IEA is correct about the excess surplus, this will put even more pressure on the OPEC+ to extend its output cuts again. Although the group extended their output cuts last week, this move had already been priced in and did not immediately support prices. Furthermore, concerns about OPEC phasing out its voluntary cuts spooked investors.

Crude oil forecast: technical analysis

Source: TradingView.com

This week’s big recovery has weakened the bears’ hold on the market, although more price action is needed to confirm a bottom. Prices still remain below a bearish trend line. The lower highs suggest the short-term path of least resistance is still downward, until told otherwise by the charts.

The key resistance level to watch today is around $79.00, give or take, where the trend line and the base of last week’s breakdown meet.

In terms of support, well the first short-term level to watch is $78.30, marking the highs from the previous two days. Below this level, the next important zone is between $76.00 and $76.50 for WTI, which had been both support and resistance in the past. If prices fall below this area, the bearish trend may resume, potentially triggering further technical selling.

For the latest insights and updates on the crude oil forecast, stay tuned as market dynamics continue to evolve.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R