Oil Eyes Continued Recovery but Market Participants Remain Cautious

OIL PRICE FORECAST:

• Oil Continues to Advance as Supply Concerns and Potential Rebound in Demand Keep Prices Elevated.
• Saudi Energy Minister to Provide a Further Update this Week on the Potential for Further Cuts or an Extension into 2024.
• IG Client Sentiment Shows Traders are 79% Net-Short on WTI at Present.
• To Learn More About Price Action, Chart Patterns and Moving Averages, Check out the DailyFX Education Section.

Most Read: What is OPEC and What is Their Role in Global Markets?

Oil prices fluctuated and eked out marginal gains during the Asian and European sessions before a rally in the US session saw WTI reach a daily high around 71.77 (at the time of writing). There are still murmurs around many circles indicating the caution and indecision of market participants as they grapple with growth concerns for 2024.

GLOBAL GROWTH FEARS AND IMF WARNING

Oil appears to be experiencing a difficult phase at present with uncertainty around the global economic picture in 2024. The disagreements by OPEC+ members at the recent meeting gives one the idea that further cuts may be difficult to achieve by the group should weak demand and slow global growth hamper Oil prices. This has kept Oil prices subdued with bulls appearing slightly hesitant despite the $23 + drop since the recent highs in the mid $90 a barrel range.

Citi Bank this morning stated their belief that OPEC+ will be able stabilize Oil prices in the $70-$80 range in 2024, but that this would require an extension of the recently announced cuts. This is double edged sword in a way with OPEC+ members seeing reduced revenue and smaller volumes, but this is likely to be worse without the cuts. The expectation is that non-OPEC+ member states will see output increase, and this will lead to excess supply in 2024, while the ongoing uncertainty around Chinese demand also remains a concern.

The IMF Deputy Managing Director Gita Gopinath today stressed that she is seeing signs of fragmentation in the global economy, with meaningful shifts in underlying bilateral trade. Gopinath added that if the global economy fragments into two Blocs over the Ukraine war global losses could be 2.5% to 7% of global GDP. This will add another layer of concern for global markets in 2023.

PORTFOLIO INVESTORS BEARISH ON OIL

It appears portfolio managers have rarely been so bearish on their crude oil outlook with the US leading the way. Hedge funds and other money managers sold the equivalent of 58 million barrels in the six most important petroleum futures and options contracts until December 5. Other takeaways from the Reuters report revealed Funds had reduced their net position in NYMEX and ICE WTI to less than 48 million barrels, among the lowest levels in the last decade while they have only been more bearish on WTI at the end of June 2023. This could be worth paying attention to moving forward as most funds have concluded prices will fall further first to force U.S. shale producers to curb output and remind OPEC⁺ members of the risks of a production free-for-all.

LOOKING AHEAD

Looking to the rest of the week and US data could have an impact on the US dollar and thus weigh on Oil prices. There is of course the FOMC meeting and other Central Bank meeting which could also have an impact on sentiment. A dent to sentiment could also weigh on Oil prices while increasing expectations of rate cuts in early 2024 could assist the recovery back toward the $80 a barrel mark.

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TECHNICAL OUTLOOK AND FINAL THOUGHTS

From a technical perspective WTI finished last week strong with what many would describe as a Morningstar candlestick pattern which hints at further upside. Immediate resistance rests just above the $72 a barrel mark with a move higher running into the 20-day MA at 74.63.

Alternatively, a push lower from here may find support at the psychological $70 a barrel mark. A break here brings the multi-month support around the $67 a barrel level into focus.

WTI Crude Oil Daily Chart – December 11, 2023

Source: TradingView

Key Levels to Keep an Eye On:

Support levels:

Resistance levels:

IG CLIENT SENTIMENT

IG Client Sentiment data tells us that 87% of Traders are currently holding LONG positions. Given the contrarian view to client sentiment adopted here at DailyFX, does this mean we are destined to revisit the lows at the $67 mark?

For a more in-depth look at WTI/Oil Price sentiment and the changes in long and short positioning, download the free guide below.

Written by: Zain Vawda, Market Writer for DailyFX.com

Contact and follow Zain on Twitter: @zvawda