Oil outlook: WTI’s price action in a wait and see position

Since last week’s report WTI’s price rose slightly and stabilised around $63 per barrel. We are to take a look at fundamental issues affecting the commodity’s price, like the state of the US oil market, market worries for the commodity’s demand outlook and supply issues for the international oil markets. For a rounder view we are also to provide a technical analysis of WTI’s daily chart.      

Mixed signals from the US Oil market

We make a start with a comment about the state of the US oil market. We skip the Baker Hughes oil rig count in lack of fresh data and note that on Tuesday API reported a considerable drawdown in US oil inventories of -4.565 million barrels. The drawdown well reversed the increase of 2.4 million barrels reported the week before implying that US oil production levels and imports were not able to satisfy aggregated oil demand levels, thus reducing oil inventories. Yet the picture of a tightening oil market was blurred on Wednesday as EIA reported a marginal increase of oil inventories of 0.244 million barrels. The element that ma have caused oil market participants to hesitate after EIA’s report, may have been also the expectations for EIA to also report a reduction of oil inventories. In any case should we see in the coming week signals of a tightening US oil market intensifying, we may see oil prices getting some support while should the US oil market ease we may see the data weighing on oil prices.

Mixed signals also from the supply side of the international Oil market

On the supply side of the international oil market we get conflicting signals. On the one hand the US sanctions on Iranian oil are here to stay practically tightening the supply of the commodity and having a bullish effect on oil prices. Yet the main event in the past few days were the news that OPEC may consider accelerating output in June. It’s characteristic that Kazakhstan stated that national interests is the deciding factor behind oil production of the member states of OPEC and not OPEC as such. Several OPEC+ members will suggest that the group accelerate oil output increases for a second consecutive month in June, three sources familiar with OPEC+ talks told Reuters. It seems as if Saudi Arabia is having problems to convince other OPEC members to keep oil production levels low and without losing its dominance, the issue may dilute its influence. Should we see further signals from OPEC members for a possible increase of oil output in the summer, we may see them weighing on oil prices.   

A possible US-Sino trade deal could lift Oil prices

The US administration practically performed a U-turn in regards to the trade war of the US with China. The sentiment in the oil market improved by US Treasury Secretary Bessent’s comments that an easing of trade tensions with China is possible, also adding that should there be a trade deal with China, tariffs would be substantially reduced, something verified by Trump as well. The US Treasury Secretary also stated that the current situation is not sustainable which is obvious on both sides of the front, which could be highlighting the willingness of the US to strike a deal with China. Overall, the comments from the US side tend to point that there is light at the end of the tunnel and further signals for a possible de-escalation and a possible trade deal, could improve the demand outlook of oil thus lifting its prices substantially, yet given the current uncertainty, the market may require more concrete evidence in that direction.

Technical analysis

WTI cash daily chart

• Support: 57.70 (S1), 54.80 (S2), 51.40 (S3).

• Resistance: 62.85 (R1), 65.00 (R2), 68.40 (R3).

WTI’s price action seems to have stabilised somewhat over the past few days, rotating around the 62.85 (R1) level. Given that the commodity’s price action seems to have broken the upward trendline guiding WTI’s price since the 9th of the month, we switch any bullish outlook and adopt for the time being a bias for a sideways motion of the commodity’s price. At the same time we also note that the RSI indicator has risen nearing yet not breaching the reading of 50, which tends to imply an easing of the bearish sentiment and a relative indecisiveness on behalf of market participants for WTI’s price. For the adoption of a bullish outlook we would require WTI’s price to break above the 62.85 (R1) resistance line clearly and continue to also break the 65.00 (R2) resistance level, with the next possible target for the bulls being the 68.40 (R3) resistance barrier. A bearish outlook seems remote at the current stage and for its adoption we would require the commodity’s price to drop, break the 57.70 (S1) support line and continue to reach if not breach the 54.80 (S2) support level.