Crude oil price has been whipsawing in recent months as the opposing forces of tight supplies and recession woes continue to impact the market. After five consecutive weeks of losses, Brent futures are on a rebound in the current week. As at the time of writing, the benchmark for global oil was at $105.57 after hitting an intraday low of $99.59 in the previous session. At the same time, WTI oil is at $102.31 as it rebounds further from the 5-month low it hit in the past week at $90.76.
In early March, Brent futures hit a 14-year high at $138.17 as tight supplies and steady recovery in demand shaped the global oil market.
Since then, it has dropped by close to 25%. Even so, the psychologically crucial level of $100 remains a steady support zone. Prior to 24th February when news of Russia’s attack on Ukraine hit the world, that zone had been evasive since September 2014. Subsequently, the bears’ attempts to push crude oil price below the aforementioned level have been unsuccessful.
A look at both the fundamentals and technicals shows that while the commodity may not rebound to its highest level year-to-date in the short to medium term, it may not record a significant decline from the support level of $100 per barrel. This argument is largely founded on the fact that OPEC+ may not be in a position to substantially increase production.
In fact, on Monday’s session, crude oil price surged by over $5 after President Joe Biden failed to convince Saudi Arabia to increase production. According to Saudi Arabia’s foreign minister, Prince Faisal bin Farhan Al Saud, discussions on the matter were not part of the US-Arab summit held on Saturday. Based on these assertions, OPEC+ may not be keen on the US President’s intentions.
Besides, one country is not enough to ease the current supply tightness. As has been the case in past years, OPEC+ will continue to use the supply/demand dynamics to ensure crude oil price don’t plunge as witnessed at the onset of the coronavirus pandemic in April 2020.
While the current rebound will likely continue in the short term, recession woes are set to curb the recorded gains. Investors are staying clear of the commodities class of assets amid concerns that the Fed’s aggressive tightening of its monetary policy may push the economy into a demand-destroying recession. While demand destruction is yet to be experienced, the strong US dollar will likely continue to weigh on the greenback-priced commodity.