Crude Oil Outlook:
- oil It is down more than 4%, to its lowest level since early May
- Concerns about the outlook for the energy market, along with the internal strife of OPEC+, are weighing the prices
- This article discusses the key WTI technical levels to watch in the coming days
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Crude oil (WTI futures) prices tumbled on Tuesday, falling more than 4% to $69.65 a barrel, dragged down by rising uncertainty about the demand outlook amid growing global headwinds, including slowing growth and rising OPEC infighting. +.
While the removal of coronavirus restrictions in China earlier in the year was seen as a game changer in fossil fuel rules, the reopening of the Asian economy has fallen short of expectations, with economic activity declining in recent weeks.
It appears that bloated supplies from Russia are affecting the commodity. Despite the OPEC+ production cut two months ago, Russia continued to pump huge amounts of crude oil in an effort to maximize its revenues, reneging on its promise to cut production.
Internal strife in OPEC+ may prevent the cartel from cutting quotas further at the June meeting, as many members may voice opposition to such a move in light of recent developments. This situation may maintain the surplus of physical markets through the second half of 2023, especially if the global economy takes a turn to the negative side.
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The Fed’s policy outlook complicates matters when it comes to oil. A few weeks ago, traders were convinced policymakers would hit the pause button next month, but expectations have since shifted in a more hawkish direction, as Wall Street has begun to lean in favor of another 25bp hike.
Although the US economy has remained resilient, investors are looking ahead, which means they are more worried about what might happen in the future than today. In this context, the higher the rates, the worse the economy and cyclical commodities will perform in the medium term.
In terms of technical analysis, oil is hovering above an important support area near $69.40 after Tuesday’s sell-off. If the sellers can push the prices below this floor in the coming days, we might see a move towards the psychological level of $66.00 in a short time.
On the flip side, if WTI establishes a base around the current levels and turns higher, the initial resistance is at $74.00. An upside clearing of this ceiling could open the door for a rally towards $76.50, followed by $79.00, which is just a touch below the 200-day SMA.
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