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Crude Oil Price Forecast: Demand and Supply Drivers Firing on All Cylinders

Crude Oil Price Forecast: Demand and Supply Drivers Firing on All Cylinders

Thomas Westwater, Analyst

Crude Oil, Reflation, Supply and Demand – Talking Points

  • Oil prices surge higher as reflation bets increase on falling Covid cases
  • Global economic backdrop, OPEC, supply and demand factors all seemingly positive
  • Crude oil’s technical posture appears primed to send prices higher

Crude and Brent oil prices are surging this week, up over 7% and 6%, respectively. The global reflation story is helping to bolster sentiment as investors’ economic outlooks grow more positive by the day, driven in large part by Covid-19 vaccine distribution efforts. Economic activity itself has also been improving as governments ease social distancing measures.

The demand-side disruptions caused by the Covid pandemic now appear to be largely priced out of the market, with crude prices rising to their highest level since January of last year, before the virus sent energy commodity prices plunging. Earlier this week, Goldman Sachs raised its price target for Brent oil to hit $75 a barrel by Q3, up from a price target of $65.

Crude Oil vs 10-Year Treasury Yield

Crude Oil vs treasury yield

Chart created with TradingView

Upbeat demand prospects, along with depressed drilling and refinery activity are helping drive prices higher as the market attempts to find a balance amid the improving economic backdrop. Alongside improving global Covid cases, a major storm system dented refinery output in the United States last week. While the disruptions are likely short-term, it undoubtedly helped the bull case for oil. Moreover, OPEC continues to artificially suppress the global supply function in oil markets and the consensus is that the cartel will continue doing so in the coming months.

Global Covid-19 Statistics

global covid statistics vs oil

Source: Wolrdometers.info

Crude Oil Technical Outlook

Prices have quickly moved above the 60 psychological level, with current prices just above the 63 handle. Upward momentum may help carry prices higher this week as indicated by the bullishly-trending MACD indicator, which is tracking firmly higher above its signal line. The Relative Strength Index remains under the 70 overbought level despite the rapid price increase.

If a pullback does occur, the 60 handle may present a reasonable target for bears targeting a short-term pullback. However, with a strong fundamental backdrop, the closer 23.6% Fibonacci retracement may provide immediate support. A move higher will see prices quickly climb above 64.00 and target the psychologically imposing 65 handle.

Crude Oil 6-Hour Chart

Crude oil tech chart

Chart created with TradingView

Crude Oil TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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