Crude Oil Price Forecast: It is likely to remain bullish on rising supply concerns

Crude Oil Price Forecast: It is likely to remain bullish on rising supply concerns

Crude Oil Price Forecast: The Price of Crude Oil is Likely to Remain Bullish with Rising Supply Concerns both on production and refining

Oil prices continue to rise higher on the backdrop of various global factors and concerns over supplies across the globe. On March 4th, 2022, Brent Crude touched a high of $138, on the headline news of the Russia- the Ukraine war. After, three and half months, although it has cooled off a bit, it is still high at an uncomfortable level for the global economy.

US Inflation reached a 40-year high last month and the Fed responded by raising US interest rates by 75 basis points, but the real concern is the price of oil which is also impacted by serious supply chain issues

Crude Oil Price Forecast: Major Factors Influencing the Crude Prices

Crude Oil Price Forecast is dependent on two major factors and multiple issues under them. At one level is the issue of demand which is a function of economic factors while at the other end is the issue of demand which is a function of Production Capacity, Distribution logistics, and Refining capacity.

Post the end of waves 2 and 3 of COVID, Global demand for Crude Oil has surged with almost all countries now operating fully. However, post the first COVID lockdown, refineries had to be permanently shut down as many of them were unable to sustain through the extended demand slump. US production suffered the most with almost 20% wiped out due to refining issues. Here are other critical factors influencing Crude Oil price forecast today.

1. Russia Ukraine War Impact – The Russia Ukraine war had an impact on every asset class, but the effect on oil prices was most significant. Russia is the third-largest producer of oil and the world’s largest exporter. US banned Russian oil in March which was followed by the EU’s Agreement to ban almost 90% of it by end of 2022. This ban has put pressure on oil prices and even after four months of grinding war between Russia- Ukraine, neither the resolution of the war nor the resolution of this ban seems likely in the near future. This has led to increased oil prices, which is likely to be sustained till the resolution does not arrive at the import ban.

2. OPEC is not supplying in full quantum – OPEC is the largest cartel of the oil supply chain in the world and holds nearly 80% of the oil reserves globally. In Covid -19 pandemic, OPEC decided to withdraw nearly 10 million barrels a day out of the market to balance supply in the midst of poor demands. As per reports, the OPEC is still not supplying at the pre-Covid levels and that has put pressure on crude prices. OPEC is still not reintroducing the supply in the market at full capacity and is reluctant to supply at the pace demanded by US and EU.

3. China easing Covid restrictions- Demands may go higher- China is one of the prime oil users on the global front. China maintains a zero Covid policy and hence the recent resurgence in the Covid cases in China was met with strict lockdowns, easing the demand pressure for crude oil. But, now China is again reopening the economy and lifting the imposed lockdowns. As normality resumes, there will be big uptick in the crude demand, meaning more trouble for oil moving forward.

Crude Oil Price Forecast: Technical Analysis

Crude Oil Price Forecast: It is likely to remain bullish on rising supply concerns

The above image shows the price of Brent crude for the last year. In the first week of March, crude touched a high of $138 and it has been very volatile between $100 and $130 in these last couple of months. Going forward, there are a few levels that need to be kept in mind. Currently, Brent crude is trading at $113.14 as of 19th June 2022.

The next key resistance is $114.68, which acted as resistance twice in the last two months. If the price crosses this level, then $124.06 will act as the next key resistance, as the price retraced from this level twice, on 31st May and 24th March. Post this level is the all-time high of $138 which must not be broken and if broken decisively, it will start a fresh rally in the crude price.

Talking about support, $100 is the next support if the prices cool down further. Also, $100 is the psychological level and bulls will not let the price falls below that level. However, if the price falls below $100, then $96 is the next support, as seen on 7th March and 8th April.

However, the crude price is still above 25 days and 50 days moving averages, which is a bullish sign for the commodity. The good news is that price has fallen below $115, a key resistance level, and is expected to further cool off in the coming few days, albeit the long-term view remains bullish and well above $100.

Crude Oil Price Forecast: US EIA and Goldman Sachs Commentary on Crude Prices

US Energy Information Administration issued commentary on the crude oil price forecast on 7th June 2022. They expect $108 per barrel in the second half of 2022. The low inventory is the main reason for the volatile crude price in the last couple of months. The price is expected to fall by $97 in 2023. However, in the 2021 Annual Energy Outlook, EIA predicted Brent crude to be priced at $61 in 2025 and $73 in 2030.

However, Goldman Sachs is more bullish on crude prices. In their report to clients, the firm predicted that the rate could hit $140 this summer itself, up from their previous crude oil price forecast of $125 a barrel. The bank calls for a more sustained period of $140 a barrel period to cut the demands in line with the low inventories globally. Goldman Sachs’s prediction says that prices will remain $135 for the rest of the year 2022 and even at least half of the next year.

Crude Oil Price Forecast: Conclusion

It is true that oil prices are at 14 years’ high levels. Last time, these levels were seen in the times of 2008 financial crisis. The major difference between these two periods is that in 2008, inflation was led by the real estate and oil prices were just facing the heat due to a ripple effect. This time, oil is playing the pivot role for inflation and thus prices are going to remain higher for a longer period than what was anticipated earlier.

Oil prices after 2008 were largely trading below $100 for most of the period. Oil prices remained in the range of $40-60 in the period between 2015 and 2020 and in times of Covid, it even touched -$37.63 on 20th April 2020. But things are looking gloomy post-Russia- Ukraine war.

The solution to the problem lies with Venezuela and some other countries locked out of the Western market for a long time. Venezuela has the world’s largest oil supply and it must reenter the global market to ease the pressure on the supply chain. Also, the US is expected to increase the amount of oil that Iran ships to replace the Russian Oil. While searching for the new sources will provide some relief, a sustainable resolution of the ban on Russian crude will be beneficial for lowering the crude prices for a longer time frame. Till then, the prices will remain very volatile and are likely to remain above $110.

Vineet Agarwal

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Subhash

Subhash

Subhash, Founder of Crowdwisdom360 is an MBA and a Trained Financial Advisor with an extensive background in Forecasting in Financial Services and Politics. He has appeared many times on National TV and has written for a variety of magazines on Wealth Management and Election Strategy.