Oil prices experienced a slight dip on Friday due to deteriorating U.S. consumer sentiment but concluded the week with a significant 4% gain, buoyed by optimistic 2024 demand forecasts. Both Brent and WTI benchmarks achieved their highest weekly percentage increases since April.
Weekly Performance
Last week, Light Crude Oil futures closed at $78.45, marking a rise of $2.92 or +3.87%.
Key Drivers of the Week
Consumer Sentiment and Economic Indicators
U.S. consumer sentiment hit a seven-month low in June, reflecting public skepticism about economic improvements. Despite this dip, strong forecasts for oil demand in 2024 mitigated potential losses. The U.S. Energy Information Administration (EIA) raised its oil demand growth estimate for next year, while OPEC maintained a forecast of 2.2 million barrels per day (bpd) growth. Conversely, the International Energy Agency (IEA) lowered its forecast to below 1 million bpd.
Federal Reserve and Interest Rates
The Federal Reserve kept interest rates unchanged, with market expectations indicating no cuts until December. This decision underscores concerns about economic stability and inflation, factors that could dampen oil demand by slowing economic growth.
Supply and Inventory Data
Baker Hughes reported a decrease in the U.S. active oil rig count, now at its lowest level since January 2022, suggesting potential future declines in output. In contrast, U.S. crude inventories rose unexpectedly by 3.7 million barrels, far exceeding the anticipated 1.55 million barrel decrease, raising concerns about surplus supply.
Global Supply and OPEC+ Actions
Russia affirmed its compliance with OPEC+ production obligations after exceeding its quota in May. Despite this, market caution persists regarding OPEC+ adherence. Traders remain wary of potential increases in supply, particularly as phased-out cuts are set to begin in October.
Geopolitical Risks
Geopolitical tensions continue to pose risks to global oil supply chains. Ceasefire talks in Gaza and attacks on shipping routes by Iran-allied Houthi militants highlight the ongoing fragility, potentially disrupting supply and affecting market stability.
Market Sentiment and Positioning
Money managers increased their net long U.S. crude futures and options positions, signaling a bullish sentiment driven by positive demand forecasts and easing U.S. labor market pressures. The U.S. Labor Department reported a 0.2% drop in the Producer Price Index for May, along with high initial jobless claims, indicating easing inflation pressures and supporting a positive outlook for oil prices.
EIA and OPEC Forecasts
The EIA’s revised forecasts present a mixed outlook: U.S. oil output is expected to grow, though projections for 2024 have been slightly lowered. However, global oil demand is anticipated to rise, potentially tightening supply through early next year. OPEC remains optimistic, projecting strong demand growth and maintaining current output cuts until September.
Technical Outlook
Bullish Indicators
OPEC’s strong demand forecasts and the Federal Reserve’s cautious stance on rate hikes provide a bullish short-term outlook for oil prices. Managed supply levels, combined with increasing global demand, are likely to sustain prices.
Key Technical Levels
The direction of oil prices next week will depend on trader reactions to the major retracement and support zone between $76.42 and $74.00. Sustained bullish momentum could push prices higher, with potential volatility introduced by inventory data and geopolitical developments.
Weekly Forecast
Overall market sentiment remains cautiously bullish, supported by strong demand projections and constrained supply. Traders should stay alert to geopolitical tensions and economic indicators that could introduce market volatility.
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