Crude oil forecast: WTI stages sharp recovery

Crude oil prices had rallied almost 3% at the time of writing on Monday, more than making back their losses from the week before. While there is hope for increased fuel demand as we head deeper into the US driving season, today’s recovery comes on the back of a three-week drop amid concerns over demand in China and rising non-OPEC supply. So, it remains to be seen whether the recovery can hold. The crude oil forecast will be under spotlight when the Fed make a decision on interest rates later this week.

Crude oil forecast: Recent oil trends and influences on prices

Over the past few weeks, oil prices have faced downward pressure due to several factors. Concerns about increased non-OPEC supply, uncertainties regarding the demand outlook in China, and diminished expectations for imminent US interest rate cuts have all played a role. Additionally, a strong recovery in the US dollar has negatively impacted sentiment in the oil market.

But after a more than 10% decline from their April highs, some analysts believe that further downside could be limited. However, we could still see prices revisit last week’s lows of around $72.50 for WTI before a more pronounced recovery starts.

Key macroeconomic events this week, such as the US inflation data and the Federal Reserve’s rate decision on Wednesday, could significantly influence the US dollar and, consequently, dollar-denominated commodities like gold and oil.

Why have oil prices rebounded?

Oil prices staged a sharp recovery in the middle of last week, and that momentum continued today after a 1-day pause on Friday. The recent gains have been driven by easing of fears about weakening US demand after the release of a stronger-than-expected jobs report and ISM PMI survey. However, persistent concerns over China continued to weigh on prices, leading to a decline for the week, which has now been made good. Last week, the sell-off in other commodities, such as copper and silver, also spooked oil investors. Today, metals were also a touch firmer, further aiding the crude recovery.

Meanwhile, investors are still unsure about the impact of the recent OPEC+ output decision. The group decided last Sunday to extend their output cuts, but this failed to provide immediate support to prices as the move was already priced in. Additionally, some investors worried about the impact of the OPEC phasing out voluntary output cuts amid rising non-OPEC supply.

However, at the start of this week, traders have decided to buy the dip. With the US driving season underway, demand is likely to recover, keeping the downside limited – for now.

Crude oil forecast: technical analysis and trade ideas

Source: TradingView.com

Today’s big recovery has diminished the bears’ control, although more price action is needed to suggest prices have bottomed. While prices remain inside the bearish channel, one can only assume that the short-term path of least resistance remains downwards.

Following today’s rally, old resistance levels or reclaimed levels like the area between $76.00 and $76.50 on WTI, are among the key support levels to watch. If prices break back below this area, then the bearish trend would resume, potentially leading to follow-up technical selling in the days ahead

For now, oil is looking to head towards the top of the bearish channel, between $78.00 and $79.00.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R