Crude Oil Prices Hit $74 ahead of OPEC+ Meeting on Demand Optimism

CRUDE OIL PRICE OUTLOOK:

• Crude oil prices extended higher ahead of this week’s OPEC+ meeting
• Strong economic recovery in the northern hemisphere may continue to drive energy demand
• WTI surpassed a key resistance level, but the RSI indicator warns of a technical pullback

Crude oil prices are trading at fresh two-and-half year highs during Monday’s APAC mid-day session, riding the tailwinds of US fiscal stimulus, falling inventories and an OPEC+ plan to further raise output in August. The oil cartel and its alliance will hold a meeting on July 1st, in which they may decide to lift pandemic-era production curbs to meet pent-up demand for fuel.

According to a Bloomberg survey, OPEC+ may boost output by 550k barrels a day in August. This amount marks less than a quarter of the global supply shortfall of 3 million barrels a day, according to Goldman Sachs’ estimation. Therefore, tight market conditions may warrant a slow and gradual output increase without causing significant price volatility.

Estimated OPEC+ Production Hike in August 2021

Source: Bloomberg, DailyFX

Meanwhile, US forces conducted airstrikes against Iranian-backed military groups on Sunday, casting a shadow over the nuclear talks between Tehran and world powers. This may dampen hopes for removing economic sanctions, including those on oil exports, imposed on the Middle Eastern country.

The outlook for energy demand remains robust as the economic recovery gains momentum in the US and Europe, although parts of the Asia-Pacific region are still suffering from Covid-19 outbreaks. The recent fall in US commercial crude inventories also strengthened this prospect (chart below).

Source: Bloomberg, DailyFX

Technically, WTI breached above a key chart resistance of 73.50 and opened the door for further upside potential. The next resistance can be found at around $76.50 – the previous high seen in 2018. The overall trend remains bullish-biased as suggested by the upward sloped SMA lines. The Relative Strength Index (RSI) pierced above the 70 mark, suggesting that prices may be temporarily overbought and vulnerable to a technical pullback.

WTI Crude Oil Price – Daily Chart

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter