Oil Price Forecast Q2 2022: Fundamental and Technical Analysis

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Oil Price Forecast Q2 2022: Robust Demand Still Met with Limited Supply.

Apr 2, 2022 |  DailyFX
David Song, Strategist

The price of oil spiked to a fresh yearly high ($130.50) in March amid the disruptions caused by the Russia-Ukraine war. Current market conditions may lead to higher crude prices as expectations for strong demand are met with indications of limited supply.

US CRUDE INVENTORIES HOLD BELOW PRE-PANDEMIC LEVELS

The recent rally in the price of oil appears to have stalled ahead of the record high ($147.27) as the rapid rise dampens the outlook for consumption. However, recent data prints coming out of the US suggest demand will remain robust in 2022 amid a downward trend in crude inventories.

WEEKLY U.S ENDING STOCKS EXCLUDING SPR OF CRUDE OIL

Source: US Energy Information Administration

US stockpiles remain well below the levels seen at the onset of the pandemic, sitting at their lowest levels since 2018. Easing COVID-19 restrictions may continue to fuel crude consumption. The Organization of Petroleum Exporting Countries (OPEC) retains an upbeat outlook for 2022.

OPEC RETAINS UPBEAT FORECAST FOR 2022

OPEC’s Monthly Oil Market Report (MOMR) for March revealed that “world oil demand recorded robust growth of 6.5 mb/d y-o-y in December 2021.”The update went on to say that “for the time being, world oil demand growth in 2022 remains unchanged at 4.2 mb/d, given the high uncertainty and extreme fluidity of developments in recent weeks.”

Nevertheless, the MOMR states that “the latest available monthly data for the US implies strongly increasing oil requirements.” Expectations for robust demand may see OPEC and its allies retaining the current production schedule. The group plans to “adjust upward the monthly overall production by 0.4 mb/d for the month of April 2022.”

US CRUDE OIL OUTPUT REMAINS STAGNANT

This upbeat outlook suggests OPEC will maintain a gradual approach to restoring production to pre-pandemic levels. Meanwhile, current market conditions may keep the price of oil afloat over the coming months as US output remains stagnant.

WEEKLY U.S ENDING STOCKS EXCLUDING SPR OF CRUDE OIL

Source: US Energy Information Administration

According to the Energy Information Administration (EIA), US crude output has held steady for six consecutive weeks, with production printing at 11.6 million barrels in the week ending March 18. With that in mind, the decline from the yearly high ($130.50) may turn out to be a correction in the broader trend as expectations for strong demand are met with indiciations of limited supply, Crude may stage further attempts to test the record high ($147.27) as long as OPEC remains relucant to adjust the production schedule.

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Oil Price Q2 Technical Forecast: WTI to Retest $130

Apr 3, 2022 | DailyFX
Richard Snow, Analyst

In Q1,crude oil prices continued the long-term bullish trend that began after WTI futures briefly spiked into negative territory in 2020. The US benchmark traded within a neat pitchfork throughout 2021, registering multiple bounces within its confines. The invasion of Ukraine ultimately sent oil prices into a parabolic rise, however.

After reaching a high of 130.50, WTI pulled back sharply towards the pitchfork before attempting another advance. The 2011 high at 114.83 has proven to be the next level of resistance. Price action has stalled there twice in the last four weeks.

At the time of writing (25 March 2022), WTI crude oil is on track to end the month higher even as prices trade midway between the monthly open and high.

Technically, the trend bias remains constructive given the absence of sequentially lower highs and lows. That prices remain at similar levels observed before the invasion of Ukraine seems to signal sustained bullish intent. Finally, the weekly RSI has receded from overbought territory, which may help clear the way for bullish continuation.

If WTI ends Q1 above the 109.90 – 111.50support zone, a retest of 130.50 remains the target. There is a nearby level of resistance at 114.83 which would need to be overcome, but little else stands in the way. The trade is invalidated should WTI trade below the March monthly low of 93.90.

WTI CRUDE OIL WEEKLY CHART

Chart prepared by Richard Snow, TradingView

There are a number of levels and zones warranting careful consideration and zooming out to the monthly chart helps gain an appreciation for them. The level of support not yet covered is 98.20 – a level that kept prices at bay throughout 2012/2013. The bullish bias remains constructive even if prices drop to this level in early Q2.

WTI CRUDE OIL MONTHLY CHART

Chart prepared by Richard Snow, TradingView