Crude Oil forecast: Bearish leg may be shortlived
After Biden’s visit to the middle east, selling pressure was effective in Oil Markets.
For now, cheaper oil is being welcomed by global leaders battling decades-high inflation. US president Joe Biden, whose approval ratings shrank as petrol prices scaled the heights a few months ago, has not wasted the opportunity to tell Americans that their drive is getting cheaper again.
Oil markets have avoided the apocalyptic scenarios energy analysts were warning of just six months ago, when a 1970s-style shock seemed unavoidable as rampantly rising post-pandemic demand met the possibility of new supply disruption.
Today’s price is softening not because supply is ample, but because soaring inflation and increasing interest rates are giving rise to fears of recession, especially in Europe.
Tepid oil demand in China is also weighing on a market that has grown to rely on the country’s relentless thirst for more crude.
Where supply is robust, it is unexpectedly so — as in Russia, where western sanctions have barely scratched the oil sector — or unnaturally so, as in the US, where Biden ordered oil from a federal emergency stockpile to be poured into the market. This has helped cap prices, but a market kept in check by a government’s decision to unleash historic volumes of emergency oil is not a natural state of affairs.
Some of these bearish factors have an expiry date. America’s stock release programme ends by November, and the emergency stash will have to be replenished. In December, Europe and the UK are due to ban insurance for vessels carrying Russia’s crude — a move that may sharply reduce Russian exports in a way sanctions so far have not.
Economic fears are yet actually to hit demand. A deep recession could upend all the commodity markets’ fundamentals, as in the 1980s, when scarcity gave way to almost a decade of abundance. But short recessions tend to cut oil demand only briefly: when economies bounce back, so does consumption.
Meanwhile, the supply-demand fundamentals that so spooked oil analysts a few months ago continue to lurk beneath the market’s surface. Opec’s spare production capacity — the source of its market power over decades — is dwindling. Even the cartel’s output is now well below its own quotas, as that of some members goes into terminal decline.
Opec’s linchpin producer, Saudi Arabia, which does have the significant spare production capacity to deploy, is already mooting new output cuts to prop up prices — an idea that will alarm consumer countries, and could just neutralize any extra oil that comes from Iran, if sanctions are eased on its industry.
Investment in new production outside Opec remains sluggish. Wall Street is reluctant to fund more fossil fuel projects that climate policy may render obsolete. The supermajors are committing less capital to the upstream than before the pandemic.
The last ” SELL” call of Cycle Sniper came on June 16th at 116.-USD.
We saw the oil prices melting down to 90.-USD / Barrel.
On H4 charts, According to the Cycle Sniper, we may see a bearish retracement towards 90.-USD.
However, bigger charts indicate a bullish continuation. Closing above 100.-USD will be a strong signal of new bullish leg and our targets will be 112 and 125.
You can contact us via Skype User Name: Chartreaderpro