In anticipation of a crucial week for oil prices, the gains by OPEC+ in production have been erased according to the weekly forecast on crude oil

1 May 2023, Monday
In anticipation of a crucial week for oil prices, the gains by OPEC+ in production have been erased according to the weekly forecast on crude oil

WTI Oil Prices Drop Despite Late-Week Rally


Last week, crude oil prices had a mixed week with a rally at the end of the week not enough to prevent a drop of 1.5%. This marks the sixth month of losses in a row. Early week gains were wiped away by a mid-week US dollar recovery before robust US earnings data saw market optimism return.


US data itself painted a rather mixed picture on its own as US GDP data and a decline in US capital goods spending. This pointed to a slowdown in economic growth while inflationary and recessionary fears resurfaced. This came back to the fore with Friday’s PCE data which came in slightly higher MoM and YoY. Also hinting at further rate hikes or at least the need for restrictive rates to be maintained for a longer period. Which in turn could affect demand.


US Inventories data from the EIA declined more than expected over the past week. While demand for motor fuel surged as summer approaches. US production meanwhile declined some 12.5 million (bpd) in February, the lowest since December 2022. Meanwhile, the Baker Hughes report for the week ending April 28 was unchanged at 591 rigs but inched down by one in April in what was their fifth monthly decline.


Latest Commodity Markets Outlook


The World Bank released their latest Commodity Markets Outlook report for 2023 and beyond. The report suggests that commodity prices are gearing up for their sharpest drop since the Covid-19 Pandemic. Energy prices are projected to decline by 26% this year with the price of Brent crude Oil in U.S. dollars expected to average $84 a barrel this year, down 16% from the 2022 average. Despite the large declines expected for the year, prices of all major commodity groups will remain well above their 2015-2019 average levels with European natural gas prices hovering at almost three times the average over the 2015-19 period.


Looking Ahead


Heading into the new week, we have a bunch of high rated risk events which could have an impact on the US dollar and general market sentiment which in turn could affect oil prices. The persistent fears around a potential recession could either be in a for a reprieve or get worse following the outcome of the US FOMC meeting on Wednesday. Markets are expecting a 25bps hike, but the devil lies in the details as they say with market participants keen to hear the Feds take on the rate path moving forward as well as the ongoing fears surrounding a recession. A hike next week by the Fed and fellow Central Banks could feed the ongoing recession narrative. But also dent any further recovery in oil prices.


There is a large amount of data on the Economic docket for the week. But nothing directly linked to OPEC + or oil prices. Most moves will be down to the effect data releases have on overall sentiment and the US dollar. Something which seems to be a theme of late. In short, hawkish rhetoric from Central Banks and in particular the Federal Reserve. We are likely to see recession fears rise and oil prices dip and vice versa.


Economic Calendar for the Week Ahead


The week ahead on the calendar is busy across the developed world with a host of ‘high’ rated data releases, and ‘medium’ rated data releases.


Here are some of the key high ‘rated’ risk events for the week ahead on the economic calendar:


– Monday, May 1, we have US ISM Data due at 14h00 GMT.

– Tuesday, May 2, we have the Core Inflation Rate YoY Flash print for the Euro Area due at 09h00 GMT.

– Wednesday, May 3, we have US ISM Services Data due at 14h00 GMT.

– Wednesday, May 3, we have the FOMC Interest rate decision and Press Conference due at 18h00 and 18h30 GMT respectively.

– Thursday, May 4, we have the ECB Rate Decision and Press Conference Starting at 12h15 and 12h45 GMT respectively.

– Friday, May 5, we close out the week with US NFP Jobs Data due at 12h30 GMT.


WTI Oil Prices


The weekly chart for WTI shows a large wick to the downside from the past week. Buying pressure came to the fore on Thursday and Friday. The weekly candle closed as a hanging man candlestick. However, it is not exactly the top of the recent rally and thus seems less convincing. On the weekly chart, we seem to be in a very broad trading range since November 2022 trapped between the 100 and 200-day MAs. Oil has not seen three successive bearish weeks since November 2022. This is looking likely to continue based on price action and this past weekly candle close.


The daily timeframe gives us a clearer picture of the initial price jump following the announcement of a production cut by OPEC+ at the beginning of April. We saw price rally slightly higher before finding significant resistance at the 200-day MA. Around the $83.30 a barrel mark before falling to this week’s low print of $74 a barrel.


Currently, the price rests just below the 100-day MA having rallied strongly on Thursday and Friday. The candle close on Friday has completed a Morningstar candlestick pattern. Which hints at further upside to start the new week. Whether this is sustainable, however, will depend on the economic data as well as geopolitical tensions.