Oil prices have recently retreated back below $80 per barrel, ending a winning streak that had been seen in recent days. The pressure in the Oil markets is increasing as the OPEC+ meeting approaches in June. This meeting is expected to have a significant impact on the future of Oil prices, especially with reports pointing to a potential Oil deficit for the second half of 2024 if production cuts are maintained. The situation is further exacerbated by reports that some OPEC members are not complying with production cuts, undermining the efforts of the organization.
In the midst of these developments, the US Dollar Index is trending higher towards 104.50 following hawkish comments made by Minneapolis Federal Reserve President Neel Kashkari. These comments have raised concerns about a potential rate hike, leading to a risk-off mood in the markets. This has resulted in a drop in equities and a strengthening of the US Dollar against other major currencies. At the time of writing, Crude Oil (WTI) is trading at $79.95 and Brent Crude at $84.21.
Chinese Oil buyers are indicating lower demand as they reduce production rates due to issues in the Chinese housing market and reduced demand for plastics driven by environmental, social, and governance (ESG) initiatives in Europe and the US. Reports suggest that OPEC has been actively managing supply to support Oil prices, while UBS strategists are favoring investments in Oil over Gold due to the potential for upside in Oil prices compared to precious metals. Tensions in the Middle East also remain high, with reports of Israel’s opposition parties seeking to oust Prime Minister Benjamin Netanyahu.
From a technical analysis perspective, Oil prices have recently reached a new high for May after a period of recovery. However, there are concerns about potential resistance levels on the upside, especially as the upcoming OPEC meeting could disappoint the markets. Key resistance levels include the 55-day Simple Moving Average (SMA) at $81.31 and a descending trendline at $81.85. On the downside, support levels are present with the 100-day SMA at $78.95 and the 200-day SMA at $79.57, along with an ascending trendline. Failure to hold these support levels could result in a revisit of May’s low near $76.00.
WTI Oil, also known as West Texas Intermediate, is a type of Crude Oil sold on international markets. It is considered a high-quality Oil due to its relatively low gravity and sulfur content, making it easily refined. WTI is sourced in the United States and serves as a benchmark for the Oil market, with its price frequently quoted in the media. Global factors such as supply and demand, political instability, and the decisions of OPEC can all impact the price of WTI Oil. Weekly inventory reports from organizations like the American Petroleum Institute and the Energy Information Agency also play a role in influencing Oil prices. OPEC, a group of major Oil-producing countries, can impact prices through production quotas set at their biannual meetings.
