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US Crude Oil Weekly Forecast: Prices Will Struggle With Demand Uncertainty, Rising Rates

US Crude Oil Weekly Forecast: Prices Will Struggle With Demand Uncertainty, Rising Rates

David Cottle, Analyst


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US Crude Oil Price Forecast: Bearish

• The inflation fight goes on across major economies with higher rates all but certain

• Crude prices needn’t plummet, but a continued meander lower is likely

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Crude oil prices will remain weighed down by concerns about final demand this week as monetary authorities all over the world focus on fighting inflation even if victory must come at a severe cost to growth. While the United States Federal Reserve has paused its long rate-hiking cycle to assess its effects of it, pretty much all other developed-market central banks are still in the midst of theirs. Even the Fed is expected to restart the process unless inflation rolls over. There’s little sign of that to date. Rates will all but certainly go higher, and perhaps much higher, yet in the Eurozone, United Kingdom, and, perhaps in Australia and Canada too. West Texas Intermediate crude prices fell below psychological support at $70/barrel after the Bank of England raised borrowing costs on June 22.

Clearly an environment in which economic slowdown is at best a side effect and at worst the object of official policy won’t be a constructive one for energy markets and this glum truth is reflected in crude oil prices. Even production cuts by the Organization of Petroleum Exporting Countries have failed to meaningfully support prices. The overall prognosis is that plentiful supply will meet lackluster demand, at least for the remainder of the year. Oil from countries under Western sanction such as Russia and Iran is finding willing buyers elsewhere, adding to oversupply concerns.

China’s demand also looks likely to underwhelm as that nation’s Covid recovery already seems to be spluttering.Oil bulls may cling to the hope that Beijing will be forced into economic stimulus measures in order to support its economy. It has trimmed prime lending rates already and may go further. However, stimulus can be a dangerous road in inflationary times and the market probably shouldn’t hope for much here. Throw in the ongoing war in Ukraine and it’s perhaps surprising that crude oil prices aren’t weaker. They may be being saved further falls by nothing more than seasonality. The northern hemisphere summer can often be a time of rangebound trading.

The coming week offers plenty of economic data which may move the market, but none which seems likely to shift the gloomy backdrop.US durable goods orders, China’s Purchasing Managers Index for manufacturing, and Germany’s Ifo business survey will all throw light on likely energy demand. US consumer confidence numbers are also due, as is the final official growth data for this year’s first quarter.

There’s not a lot of cheer baked into forecasts for any of these numbers, and even modest upside surprises could see oil markets move. In terms of more market-specific news, US oil stock data from the Energy Information Authority is also on the docket. Overall, while oil prices may not fall much further this week, there seems very little hope that they are going to buck their overall trend, so it’s another bearish call this week.

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US Crude Oil Technical Analysis

Chart Created Using TradingView

Prices are once again leaking out of the admittedly very broad trading band established between the low of December 9 at $70.30 and the peak of April 12 at $83.41. The market has tended to fight back into that range whenever it has abandoned it but a clear pattern of lower highs and lower lows in place since May 2 suggests that the will to do so is fading. If prices close out this month below that range, as they look likely too, then we may well see deeper falls.

For now, the market has trendline support at $65.66, but a fall below that would put the March lows down at $64.97 back in uncomfortable focus.

--By David Cottle For DailyFX

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