Crude oil forecast: WTI turns positive, snapping 3-day fall

Crude oil prices turned high on the session, with Brent finding good support from $84.00 and WTI around $80.50. If the gains can be sustained into the close, oil prices will snap a three-day sell-off. The recovery seems to have been driven by expectations that oil market will tighten later in the year, after another bigger-than-expected drawdown of US oil stocks was reported by the US Department of Energy earlier. Prior to the recovery in the second half of the day, oil prices were looking quite bleak, threatening to fall for a fourth consecutive day. Those declines were partly driven by the milder-than-expected impact of a US hurricane and after recent global economic data dampened oil investors’ expectations for demand growth. However, some forecasters, including the Energy Information Administration (EIA), still anticipate higher oil prices due to slower output growth. We share this view and believe oil prices will rise further in the second half of the year as the market tightens. Therefore, our crude oil forecast remains bullish.

Crude oil forecast: Video technical analysis

Crude oil stocks fall more than expected

Earlier today, we saw the latest crude oil stockpiles data from the US Department of Energy's Energy Information Administration (EIA) come out better than expected:

Crude stocks -3.443MM, Exp. +1.0MM
Gasoline -2.006MM
Distillates +4.884MM
Cushing -702K
SPR +477K
Production 13.3MMb/d +100k

Crude oil had already bounced off its lows before the latest US oil inventories data came out, and so prices didn't show any material reaction in immediate response. However, a couple of minutes afterwards when investors digested the data, prices broke above $81.50, which then gave rise to further technical buying above that level.

The muted initial response was partly because the American Petroleum Institute (API) had already estimated yesterday that there would be a bigger-than-expected drawdown in oil stocks.

Crude oil forecast: Bullish trend remains intact

In any event, the bullish trend remains intact and if we see a positive close today around the $80.00-$81.50 support area, then this would bode well for the trend followers as we head into the business end of the week.

WTI has been testing a key support area in the last couple of days following its recent drop.

Source: TradingView.com

Prices have been testing support around the upper end of the $80.00 - $81.50 area, which had been resistance in the past.

I am expecting prices to rebound around this key support area given the bullish price structure of crude oil over the past several days. If so, another test of the bearish trend line dating back to September 2023 should not come as a surprise, around the $84.00 area.

The crucial support level is now around $80.00, which is the most recent low before the latest rally. If WTI breaks below this level, it would invalidate its still-bullish technical outlook. However, my base case scenario suggests that we could see a recovery from the current levels.

So, as things stand, I maintain a bullish crude oil forecast for the reasons stated above.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.