Crude Oil Outlook: Demand Potential vs OPEC Supply Policies

Positive Outlook Factors:

• Crude Oil is on a 3-day positive rebound from its two-month lows

• Middle East tensions are heightened with the clash between Israel, Egyptian troops, and Rafah

• Crude oil inventories are expected to drop on Thursday by 3.7M barrels

• China’s Manufacturing PMIs are expected to proceed higher for a third consecutive month above the 50 industrial expansion mark on Friday

• OPEC decisions may prioritize government revenue needs over market balance

Negative Outlook Factors:

• U.S Prelim GDP is set to revise lower on Thursday from 1.6% towards 1.3%

• OPEC and IEA analysts look toward an increase in oil output to balance the market amid increasing demand levels

The world’s leading economies are set to report growth metrics this week, weighing on oil demand potential prior to the weekend’s anticipated OPEC policies. U.S. Prelim GDP is set to revise a further drop on Thursday to 1.3% after the Advance GDP dropped from 3.4% to 1.6% in April. Given a combination of underperforming economic growth with high inflation and interest rate levels, an overall threat to oil demand potential in the economy can be present.

On the other hand, Chinese manufacturing PMI growth has beat expectations for the past two-months and is expected to potentially proceed and boost oil demand potential. Beyond growth metrics, supply concerns are in the headlines this week amid the continuing conflicts in the Middle East. Thus, OPEC policy outlooks are indecisive between analyst views for an output increase to maintain market balance, and minister views for an outlook decrease to maintain price security in terms of government revenue needs.

Quantifying the factors at play:

Crude Oil Outlook: USOIL – Daily Time Frame – Logarithmic Scale

Rebounding from two-month lows, oil prices are heading back towards the 80's zone once again. Throughout May, the commodity has been moving within a sideways and expanding range. The following key levels will be closely monitored for a potential trend breakout:

From the upside: a firm breakout above 81 could pave the way towards the 83-84 zone, potentially aligning with a mid-channel zone and pattern shoulders. A further breakout can drive the trend back to the yearly 87 high.

From the downside: a firm breakout below the 76 level could lead to a decline towards the 75-74.40 zone, which aligns with a potential head and shoulders target. Further downward breaks are watched for bearish dominance back to yearly lows on the 70 - 69 end.

Given the many opposing factors affecting oil volatility, a firm breakout is awaited beyond the sideways trend to lead the dominant outlook.

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