Crude Oil Prices Inch Up After Plunge, Demand Worries Dominate

Crude oil prices made minor gains in Asia and Europe on Tuesday, but they remain far from recovering the sharp declines seen in the previous session.

The market continues to grapple with the bleak outlook of abundant global supply meeting weak demand. This situation is exacerbated by indications that China’s short-term energy requirements are far from reaching their pre-Covid levels, despite signs of economic recovery.

Goldman Sachs revised its oil price forecasts over the weekend, citing higher-than-anticipated supply levels this year and beyond. The new projections estimate Brent crude to reach $86 per barrel by year-end, down from the previous prediction of $95. The US benchmark West Texas Intermediate is expected to reach $81, down from $89.

Some analysts believe that Saudi Arabia may extend its significant supply cuts into July and potentially beyond, given the weakness in oil prices. Last week, the country announced a production reduction of one million barrels per day, marking one of the most substantial cuts in years.

Similar to other markets, the oil market awaits this week’s series of interest rate decisions from major central banks. The Bank of Japan and the European Central Bank will make their announcements, but all eyes are on the US Federal Reserve’s decision on Wednesday. Nervous market participants expect the Fed to halt its rate hikes for the first time in eleven meetings. However, considering the persistent global inflation, it remains uncertain whether this historic monetary tightening cycle is truly over in the US, and it is certainly far from finished in Europe. Canada and Australia have already raised rates this month.

The rate hikes implemented in the US have weighed on the energy market, as they have strengthened the US dollar, making goods priced in it more expensive for buyers in other countries. Additionally, overall demand has weakened. Therefore, the market will closely monitor any indication of how long the pause in the Fed’s rate hikes could last, even though it is highly unlikely to receive a definitive answer.

Daily chart prices have once again fallen below a wide trading range that the bulls must reclaim quickly to avoid further and deeper declines. The upper limit of the range is defined by the intraday high of $83.28 reached on December 1 and retested on April 13. The lower limit is marked by the intraday low of $70.19 on December 9.

The recent downward movement has so far followed a moderately sloping trend line, providing support near the current market level of $66.83. If this level is breached on a daily or weekly closing basis, it could lead to further declines towards the significant recent low of $64.46 reached on March 20, which is the lowest point seen since the end of 2021.

Nevertheless, the market is likely to remain on edge until the Fed’s decision is announced, and there is still one more day to wait for that.