Crude oil price is in a consolidation pattern as the Fed’s rate hike on Wednesday further strengthened the US dollar. Besides, concerns over Chinese demand also continue to weigh on the asset. Even so, the bullish oil demand forecast by OPEC, coupled with the prospects of tight supply, have provided a floor for the prices. At the time of writing, Brent futures – the benchmark for global oil – was at $94.99; down by 0.5%.
Prospects over tight supply sustained crude oil price in the green for the third consecutive session. Indeed, it is one of the factors that has maintained a steady support for the asset at $90.
Data released by the US Energy Information Administration (EIA) on Wednesday showed that inventories in the country’s storage facilities dropped by 3.115 million barrels in the week that ended on 27th October. This was the largest draw in about two months and comes after a build of 2.588 million barrels in the previous week.
At the same time, the market continues to digest OPEC’s bullish oil demand forecast. The alliance is optimistic that global oil demand will continue to grow for another decade. In its annual World Oil Outlook, it forecasts that global oil consumption will rise by 13% to 109.5 million bpd in 2035. Besides, it increased its forecast for global oil demand in 2023 to 103 million bpd. The figure is higher from its 2022 and 2021 forecast by 2.7 million and 1.4 million bod respectively.
Even with these bullish factors, crude oil price remains below the once steady support level of $100. To begin with, there have been persistent concerns over the status of oil demand in China amid COVID lockdowns in various parts of the country. Granted, investors are hopeful that easing of the restrictive measures is a matter of “when” rather than “whether”.
Furthermore, interest rate hikes by the Fed have continued to strengthen the US dollar; making crude oil more expensive for buyers with other currencies. On Wednesday, the bank hiked rates by 75 basis points while hinting at a lesser one in its next meeting. In reaction to the economic event, the dollar index extended its previous gains to $112.66 as at the time of writing; up by 0.5%.
Crude oil price prediction
In early Thursday trade, Brent oil maintained gains from the previous session. As shown on its daily chart, it is trading above the 25 and 50-day exponential moving averages. Indeed, it is set to record its third consecutive week of gains. Even so, it remains below the once steady support zone of 100.
In the short term, I expect crude oil price to remain below the aforementioned psychological level. In particular, the range between the resistance level at 97.40 and the 25-day EMA at 93.21 will be worth watching. A pullback past the horizontal channel’s lower border will give the bears an opportunity to retest the critical support at 90.