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Crude oil price forecast: inventory data in focus as demand side strengthens

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Crude oil prices underpinned by strong fundamental tailwinds; inventory data in focus as traders weigh supply and demand and technical posture looks supportive for prices to test March highs.

Source: Bloomberg

Crude oil is little-changed through early Asia-Pacific trade after falling overnight. However, prices remain near the highest levels since 2008. While global production has increased, it has failed to keep pace with demand amid loosening Covid-19 restrictions. Although some predict that high gasoline prices may be tempering demand, consumers appear to be willing to stomach the higher prices so far.

Moreover, China has started to roll back Covid restrictions across its major cities that have been under lockdown, to varying degrees, over the last several months. Outside a major resurgence in cases, restrictions across the country should continue to ease, likely fueling demand for crude oil further. Caixin services PMI, released earlier this week, hinted that the economic lull from lockdown restrictions may be ebbing.

In the latest bullish sign for oil prices, Saudi Arabia’s state-owned Aramco raised premiums charged for July deliveries to Asia and Europe. The move indicates that Aramco sees the market tightening further into the summer months. Citi Research, meanwhile, raised its price forecasts for oil prices, citing the delay in Iranian oil returning to the market. Hopes ran high earlier this year for a deal between Washington and Tehran, one which would see a gradual return of its oil back into the global market.

This week, traders will have their eyes set on inventory data to gauge the ongoing imbalances between supply and demand. Tonight, the American Petroleum Institute (API) is set to release its weekly inventory report. The Energy Information Administration (EIA) will follow with its own report later this week. Analysts expect to see US crude oil stocks fall by 1.8 million barrels for the week ending June 03, according to a Bloomberg survey. A larger-than-expected draw may push prices higher.

Crude Oil technical forecast

Crude prices are holding near the highest levels traded since March despite a weak start to the week. A trendline from 2021 has largely supported prices during pullbacks, along with the 50-day Simple Moving Average (SMA) to a lesser but still noticeable extent. A breach above the March high just below 130 may invigorate the rally further.

Crude oil daily chart

Source: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Thomas Westwater | Analyst, DailyFX, New York City
07 June 2022

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