Oil Q3 2022 Forecast

[MongiIG]

Oil Q3 2022 Forecast: Rising Output to Coincide with Easing Demand

Jul 2, 2022 | DailyFX
David Song, Strategist

The price of oil has fallen roughly 20% from the 2022 high ($130.50) as US President Joe Biden takes further steps to combat high energy prices. Crude may face a further decline over the coming months as rising output is met with easing demand.

US OUTPUT APPROACHES PRE-PANDEMIC LEVELS

The Biden administration has called upon Congress to suspend the federal gas tax for the next 90 days while holding ‘emergency meetings’ with refiners in order to curb energy prices. Developments coming out of the US, the world’s largest consumer of oil, may continue to influence the price of crude as production approaches pre-pandemic levels.

WEEKLY U.S FIELD PRODUCTION OF CRUDE OIL

Source: US Energy Information Administration

Recent figures from the Energy Information Administration (EIA) show US production widening to 12,000K from 11,900K in the week ending June 3 to mark the highest reading since April 2020. It remains to be seen if the Organization of Petroleum Exporting Countries (OPEC) will respond to the development as the group announced that July production will be adjusted upward by 0.648 mb/d following the June 2 Ministerial Meeting.

However, the recent adjustment in OPEC output may end up being temporary as the organization increased production by 0.432 mb/d for most of 2022. A further rise in US supply may push OPEC to revert back to its previous schedule as the group acknowledges that “renewed activity is expected to lead into the summer holiday season of the northern hemisphere.”

OPEC OUTPUT SCHEDULE WITH DEMAND OUTLOOK UNCHANGED

Table 4- 2: World Oil Demand in 2022

Source: OPEC

OPEC’s Monthly Oil Market Report (MOMR) for June states that “in 2022, oil demand growth remain unchanged at 3.4 mb/d.” The report goes on to say that “world oil demand is projected to average 100.29 mb/d, which is same as the previous month’s estimates.”

The report also forecasts that demand is expected to exceed 2019 by 0.09 mb/d. Signs of slowing US economy may encourage OPEC to throttle back production later this year as “current geopolitical developments and the uncertain roll-out of the pandemic toward the end of the second half of the year continue to pose a considerable risk to the forecast recovery to pre-pandemic levels.”

Efforts by the Biden administration along with the rise in US crude output may continue to drag on the price of oil. Crude may face a bear market over the coming months if the outlook for global demand deteriorates.

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Oil Q3 2022 Technical Forecast: WTI Bull Trend Shows Signs of Slowing Down, Not Breaking

Jul 3, 2022 | DailyFX
Richard Snow, Analyst

Technical forecasts for oil are always challenging as the market is so heavily driven by fundamental factors like demand and supply, geopolitical uncertainty, war, the value of the dollar, the state of the global economy and others.

Furthermore, global growth concerns rear their ugly head at a time when inflation remains uncomfortably high, leaving oil prices susceptible to an economic slowdown if the perfect monetary policy mix fails to materialize. My technical view favors a bullish continuation but at more conservative levels, with the chance of ranging between $105 and $114.83 into the end of the summer.

Crude oil remains elevated but dropped significantly in the last weeks of Q2 after the failed attempt to reach the March high was capped at $123.68 in June. Since then, price action eased as oil prices dropped. The (dotted) ascending trendline, acting as support throughout the majority of Q2 broke to the downside in the penultimate week of Q3 around a significant zone of resistance that warrants closer attention.

A zoomed out daily chart has been utilized below to focus on the more nuanced areas of interest that would not be captured on a weekly chart, given oil’s volatile rise over a short period of time.

The daily chart below depicts the zone of support as the red rectangle and comprises the $103.65 level of support; and the ($104.70) overlap of the 38.2% and 61.8% Fibonacci levels for the major 2020 move and recent April-June 2022 move, respectively. Thus, a break below this level with continued momentum is not to be taken lightly as it could set the tone for subsequent price action in Q3 with further downside support at the 78.6% retracement of the April-June move at $99.50 before the potential of a full retracement of the move at $92.93.

WTI CRUDE OIL (DAILY CHART)

Source TradingView, chart prepared byRichard Snow

WTI CRUDE OIL TECHNICAL FORECAST FOR Q3: BULLISH

However, at the time of writing (23 June), the breakdown is inconclusive and could very easily result in a false breakout, or ‘false breakdown’ in this case. The June 22nd daily candle broke below the trendline but immediately rose to close back above it – signaling that the longer-term uptrend may still have some life left. Therefore, should we see continued rejection of lower prices (extended lower wicks), the oil market would appear primed for a return to the bullish trend should a positive catalyst appear.

The upside target coincides with the 2011 high of $114.83 which overlaps with the 23.6% Fib of the March 2020 move. Such a conservative target is consistent with my view that although oil prices remain bullish, there are a number of challenges to significantly higher oil prices, with the biggest inhibitor being demand destruction and lower household purchasing power. In fact oil prices could range between current levels ($105) and $114.83 as driving season continues through the remainder of the US summer.

The weekly chart sends out a rather stark warning for oil bulls not to be complacent and to manage risk appropriately as a bearish crossover appears on the MACD indicator. The MACD came ever so close to a bearish crossover in April, narrowly avoiding it as prices rose once more.

WTI CRUDE OIL (MONTHLY CHART)

Source: TradingView, prepared by Richard Snow

It will be crucial to monitor price action early on in Q3 in the event this bearish crossover shows signs of follow through. A move towards $95 wouldn’t bode well for the bullish outlook and a move below $92.93 would invalidate it.