WTI Crude Oil Price Forecast: What's Next After The Unexpected Drop In U.S. Stockpiles And Europe's Return To Russian Oil?

(MENAFN- Investor Ideas) Investorideas ( ), a go-to platform for big investing ideas releases market commentary from Rania Gule, Senior Market Analyst at XS.

Crude oil prices are experiencing continued fluctuations due to significant international Political and economic volatility. As of today, Wednesday, prices are trading at $67.80 per barrel, shaped by intersecting economic and geopolitical factors influencing market direction. After a price decline earlier this week, a modest recovery occurred, spurred by supportive indicators, most notably the American petroleum Institute's report showing an unexpected drop in U.S. oil inventories. The data revealed a 0.573-million-barrel decrease, contrary to expectations of a 2.3-million-barrel increase, suggesting a supply-demand balance that could temporarily boost the market's recovery, in my view. However, pressures persist due to geopolitical developments in the Middle East, leaving the market vulnerable to future volatility.

In my opinion, the inventory data's support is accompanied by another factor: the U.S. decision to purchase three million barrels for its strategic petroleum reserves. This move reflects Washington's response to stabilize the oil market amid current volatility, underscoring the importance of strategic stockpiles to address potential future crises. Yet, this action may have limited impact, given its relatively small scale compared to daily U.S. consumption, meaning its effect will likely be short-term. Additionally, the possibility of exhausting available funds for future purchases until Congress allocates additional budgets limits the U.S.'s ability to use reserves as a long-term market support tool.

Geopolitically, recent events in Israel and tensions in Lebanon are significantly impacting oil prices. Israeli Prime Minister Benjamin Netanyahu's statement about a potential diplomatic solution temporarily eased tensions, positively affecting market expectations of regional stability. However, the security situation in the Middle East remains volatile, keeping oil prices susceptible to further fluctuations if the crisis escalates again. Given the market's reliance on regional stability to ensure oil flow, any new disruptions could lead to sharp, unexpected price increases.

I also believe that OPEC+'s plans to ease production cuts present a bearish factor that may weigh on prices in the near term. The coalition, which includes Russia and OPEC members, aims to increase production by around 180,000 barrels per day starting this December. This could create downward pressure on prices, especially if this easing does not coincide with significant global demand growth. With Russia's production partially recovering due to resumed oil flow through the Druzhba pipeline to Europe, a new dynamic could lead to an oversupplied oil market and further pricing challenges.

It is crucial to highlight Russia's continuing role as a major oil supplier to Europe, particularly to countries like Hungary and Slovakia, which heavily depend on Russian oil. Despite the European embargo on Russian oil, some European nations lacking strong alternatives were granted exemptions, enabling Russian oil to continue flowing through Ukrainian territory. Russia has shown flexibility in overcoming sanctions challenges through negotiations with Ukraine and Eastern European countries, allowing it to maintain a presence in the European market despite political pressures and Western sanctions.

In my view, these countries' increased reliance on Russian imports is an important step, as they continue to face logistical challenges stemming from strained relations with Ukraine. These challenges are expected to persist, yet they underscore the adaptability of both European nations and Russia in managing crises to ensure energy supply stability despite high costs and associated risks.

However, the future remains clouded by considerable uncertainty. Shifts in U.S. policies, especially as elections approach and with a possible Donald Trump victory, could introduce new factors to the equation. History shows that Trump's previous presidency coincided with significant oil price volatility. His potential return to power might increase pressure on oil prices, especially if he implements policies aimed at boosting U.S. production and possibly reducing import reliance. Concerns about repeating the 2016 scenario, which saw oil prices drop after his victory, bring to mind a potential increase in production and supply sufficient to shift the equation once again.

In conclusion, crude oil prices continue to oscillate between multiple economic, political, and geopolitical factors. Despite temporary signs of support, uncertainty still dominates the market, and the future trajectory depends on evolving geopolitical developments and the policies of major nations.

The recent movement in crude oil prices indicates a sharp decline following recent geopolitical events. However, the overall impact on the market remains contingent upon several future factors, including the accommodative monetary policies adopted by central banks worldwide, which bolster global economic growth and stimulate oil demand.

From a strategic perspective, these accommodative monetary policies may support the crude oil market, expected to drive manufacturing cycles and revive global economic activity. However, specific risks could negatively affect prices, notably the upcoming U.S. elections. A Trump victory, in particular, raises concerns for the markets due to the potential for increased U.S. oil production, which could exert downward pressure on prices. It's worth noting that Trump's first term initially saw a decline in oil prices following his 2016 victory. However, the market later responded with a price rise, in line with expectations of increased global growth.

Technically, on the daily chart, crude oil shows an inability to break through the critical resistance level at $71.67, where it has faced significant selling pressure. In light of this trend, the main target for sellers is likely around the support level of $65.00, where buyers are expected to intervene to strengthen their position and create opportunities to return to the annual range highs. This level may serve as a common attraction point for buyers looking to regain bullish momentum.

On the four-hour chart, we identify a secondary support level at the October low of $66.70, which is linked to the geopolitical tensions between Israel and Iran. This level is expected to attract some buying activity, albeit with specific risks, as buyers may look for opportunities to rebound from this level upwards toward the downward trend line. Conversely, sellers will attempt to press their bearish bets down to the $65 level, which is considered an attractive target if the selling pressure persists.

On the hourly chart, following recent news, we witnessed a sharp downward price gap, reflecting the markets' response to news regarding the absence of direct attacks on energy facilities. Buyers within this timeframe are looking for a rebound at the $66.50 level, which represents a pivotal swing point that may provide suitable support to regain some momentum, while sellers target testing the support level at $65.

Upcoming U.S. economic data will play a crucial role in shaping crude oil price expectations this week. Starting with the Job Openings report and Consumer Confidence report tomorrow, followed by ADP data and GDP on Wednesday, then Personal Consumption Expenditures, unemployment claims, and the Employment Cost Index on Thursday, culminating in the Non-Farm Payrolls report and the ISM Manufacturing PMI on Friday. These data points collectively may impact expectations for U.S. economic growth, which could subsequently reflect on oil demand and price movements in the global market.

Support Levels: 67.75 - 66.28 - 65.46

Resistance Levels: 68.24 - 69.79 - 71.83

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