OPEC Demand Forecast Boosts Bullish Sentiment in Oil Markets

Oil Prices Rise on OPEC Demand Forecast and Easing U.S. Inflation

Oil prices are sharply higher as we end the week, driven by an optimistic demand forecast from OPEC and signs of easing U.S. labor market and inflation pressures. These factors have bolstered expectations for potential Federal Reserve rate cuts despite recent cautious statements from Fed officials. Consequently, oil prices have posted a near 3% weekly gain.

US Economic Indicators and Federal Reserve Actions

The U.S. Labor Department reported a 0.2% drop in the Producer Price Index (PPI) for final demand in May, contrary to the expected 0.1% increase. Additionally, weekly initial jobless claims hit a 10-month high. On Wednesday, the Federal Reserve kept interest rates steady, delaying potential rate cuts until at least December. Fed Chair Jerome Powell noted that inflation had decreased without severely impacting the economy, but higher borrowing costs could still suppress oil demand by dampening economic growth.

EIA Reports Increased Crude Inventories

The Energy Information Administration (EIA) revealed a significant rise in U.S. crude inventories, up by 3.7 million barrels for the week ending June 7, far exceeding the anticipated 1.55 million barrel decline. Fuel inventories also saw substantial increases, heightening concerns about excess supply. Additionally, the EIA revised its forecast for 2024 oil demand growth downward by 100,000 barrels per day, now estimating a growth of 960,000 barrels per day.

EIA Short-Term Energy Outlook

The EIA's short-term energy outlook provided a mixed picture for the oil market. The agency revised its forecast for U.S. oil output upward, now expecting production to grow by around 310,000 bpd to 13.24 million bpd this year. This is about 40,000 bpd higher than the previous forecast in May. However, the EIA slightly lowered its projection for U.S. output in 2024 to 13.71 million bpd, down from 13.73 million bpd.

Global oil demand is also expected to surpass previous estimates, with the EIA forecasting a rise of 1.1 million bpd to 103 million bpd this year. This upward revision suggests stronger consumption despite recent concerns about slowing demand. For 2024, the EIA projects global oil demand to increase to 104.5 million bpd, slightly higher than its previous forecast.

Despite these positive demand projections, the EIA noted a slower increase in OPEC+ supplies, which could lead to a decline in global oil inventories through the first quarter of next year. This reduction in stockpiles is expected to exert upward pressure on oil prices, providing some support to the market.

OPEC’s Monthly Report

OPEC’s latest monthly report highlighted strong growth prospects for global oil demand in 2024, projecting an increase of 2.25 million barrels per day (bpd). This forecast remained unchanged from the previous month, emphasizing the organization's confidence in the resilience of oil consumption. OPEC expects world oil demand to rise by 1.85 million bpd in 2025, supported by steady global economic growth, particularly in the services sector, which is anticipated to drive consumption through travel and tourism.

The report also noted that OPEC+, which includes Russia and other allies, has been actively managing production levels to maintain market balance. The group agreed on June 2 to extend the current output cut of 2.2 million bpd until the end of September, with a gradual phase-out starting in October. This decision is aimed at mitigating any potential oversupply and supporting prices.

OPEC Secretary General Hathaim Al Ghais announced that the organization anticipates oil demand to reach 116 million barrels per day by 2045, countering the International Energy Agency's (IEA) prediction of peak oil consumption by 2029. Al Ghais criticized the IEA's outlook, calling it a "dangerous commentary" that could lead to unprecedented energy volatility.

International Energy Agency Report

In contrast to OPEC’s optimistic outlook, the IEA released a bearish report warning of potential near-term oversupply. This divergence in forecasts has added to market uncertainty. The IEA's concerns about an oversupply stem from expectations of increased production and a slower-than-anticipated demand recovery. This cautious perspective has created a wider split between forecasters regarding the strength of oil demand growth in 2024.

The IEA highlighted the ongoing global shift towards cleaner energy sources, which could dampen long-term demand for oil. This transition, coupled with geopolitical uncertainties, poses risks to market stability and future consumption patterns. The IEA's report underscores the need for close monitoring of supply-demand balance to manage potential volatility.

Geopolitical and Market Concerns

Geopolitical tensions remain a concern for oil traders. Talks over a potential ceasefire in Gaza and recent attacks on shipping in the Red Sea by Iran-allied Houthi militants continue to pose risks to supply chains. In the latest incident, Houthi militants attacked a Greek-owned coal carrier near Yemen's Red Sea port of Hodeidah, raising alarms about the safety of maritime routes in the area. These geopolitical tensions underscore the fragile nature of global oil supply and the potential for unexpected events to influence market stability.

Weekly Light Crude Oil Futures

Trend Indicator Analysis

The main trend is up, but momentum has shifted to the downside, following the closing price reversal top the week-ending April 12. The minor trend is down.

The near-term retracement zone at $76.42 to $74.00 has been tested successfully the last two-weeks. It is essentially controlling the near-term direction of the market, offering hope for the bulls and a potential trigger point for a steep decline for the bears.

A trade through $86.64 will signal a resumption of the uptrend. The main trend will change to down on a move through $66.19.

The minor trend will change to up on a move through $80.62. This will shift momentum to the upside, while a trade through $72.48 signals a resumption of the downtrend.

Weekly Technical Forecast

The direction of the Weekly Light Crude Oil Futures market the week-ending June 21 is likely to be determined by trader reaction to $76.42.  

Bullish Scenario

A sustained move over $76.42 will signal the presence of strong buyers. If this creates enough near-term momentum then we could see an acceleration into the minor 50% level at $79.56 and the minor top at $80.62. The latter is a potential trigger point for a breakout to the upside.

Bearish Scenario

A sustained move under $76.42 will indicate the presence of sellers. This could drive prices into Fibonacci support at $74.00, followed by this week’s low at 72.48, which is a potential trigger point for an acceleration to the downside.

Bullish traders are trying to take advantage of the recent break because they view any test of $74.00 to $72.48 as value. So watch for them to defend this zone against a further steep decline. Holding this area could create a rangebound trade. Look out below if $72.48 is taken out with conviction.

Market Forecast: Bullish

Given OPEC's strong demand forecasts and the Federal Reserve's cautious approach to rate hikes, the short-term outlook for oil prices remains bullish. The anticipated increase in global demand, coupled with managed supply levels, is likely to support prices. However, traders should stay alert to inventory data and geopolitical developments that could introduce volatility. Expect prices to trend higher as demand projections and constrained supply support the market.

Technically speaking, next week’s direction hinges upon trader reaction to the major retracement and support zone at $76.42 to $74.00.