Q2 2024 Crude Oil Outlook: Oil Price Surge Challenges Multi-year Downtrend

Crude Oil Q1 Review

In our 2024 oil price outlook we noted that, “from a technical standpoint, the focus is on a reaction into this key support zone early in the year with the bearish-bias vulnerable while above 62.83. Ultimately, we’re on the lookout signs of downside exhaustion / a possible washout in H1 with a breakout of the 2022 downtrend needed to validate a broader reversal in trend.” Crude prices held support into the yearly open with WTI rallying more than 23% off the December lows.

Heading into Q2, the advance may be vulnerable as price tests major technical resistance and the focus is on price inflection in the weeks ahead. Although oil demand is expected to remain stable, the extended OPEC production cuts, upward revisions for US GDP growth, and strained refining capacities may limit the extent of a pullback here and put a floor under crude prices.

Oil Production & Refinery

US weekly output is back up near the record highs with the Energy Information Administration (EIA) highlighting current weekly production at more than 13 million barrels a day. Despite the sustained supply, oil refinery capacity has not grown at the same pace. In the most recent Monthly Oil Market Report, OPEC reported global refinery intake declining 958 tb/d in March, denoting a 434tb/d year-on-year and continued maintenance of refinery facilities may continue to constrain output rates.

In the FOMC’s latest Summary of Economic Projections, the committee upwardly revised their assessments on both GDP and employment for 2024 and with global demand expected to remain stable for the remainder of the year, the imbalance with refinery capacity may help keep prices afloat.

Technical Outlook

Oil Price Chart - WTI Weekly

Chart Prepared by Michael Boutros, Technical Strategist; WTI on TradingView

Oil prices continue to trade within the confines of a descending pitchfork extending off the 2022 highs. The advance is now testing a major resistance hurdle at 83.28-84.57- a region defined by the 2021 high-week (HWC) and the 61.8% Fibonacci retracement of the September decline. The focus is on possible price inflection into this zone heading into the April open.

A breach / weekly close above this threshold is needed to suggest that a more significant low was registered last year and invalidate the 2022 downtrend. Such a scenario would expose subsequent resistance objectives at the 2023 high-week close at 90.79, the 2023 swing high at 95.01 and the 100% extension of the 2023 advance at 99.07- look for a larger reaction there IF reached.

Look for initial support along the 52-week moving average (currently ~77.85) backed by the 50% retracement the December advance at 75.77- both areas of interest for possible downside exhaustion / price inflection IF reached. A break below multi-month channel support (blue) would shift the medium-term outlook lower and threaten another test of the key technical confluence around 70.06-71.31 - a region defined by the 2022 low, the 78.6% retracement of the 2023 range, the 2023 low-week close (LWC) and the objective 2024 yearly open.

Bottom Line: A three-month rally off support has WTI testing major technical resistance into the close of the March- the focus is on possible price inflection off this zone. While production levels remain elevated, sluggish refinery output, increased growth expectations, and growing geo-political tensions may limit the downside and ultimately, we’re on the lookout for an exhaustion low in the weeks ahead.

From a trading standpoint the long-bias may be vulnerable near-term, but the outlook remains constructive while within the December uptrend. Losses should be limited to 75.77 IF price is heading higher on this stretch with close above 84.57 needed to fuel resumption of the uptrend.

--- Written by Michael Boutros, Sr Technical Strategist with FOREX.com

Follow Michael on X @MBForex