US crude oil has begun July on a positive note, buoyed by expectations of rising summer demand
Crude oil prices kicked off July with gains on Monday, bolstered by optimism about robust summer demand in the northern hemisphere and ongoing production cuts that supported the market despite previous strong gains in June.
Both West Texas Intermediate (WTI) and Brent crude, the global benchmark, saw increases of over 5% throughout June. These gains persisted despite concerns over the global economic outlook and reduced expectations for interest rate cuts in the US.
The vigor in oil prices can be attributed to the recent agreement by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to extend production cuts into 2025. Analysts predict this move will exert significant pressure on supply, leading to a decrease in stockpiles during the third quarter of this year. This ongoing support contrasts with weakening supply from non-OPEC+ countries, which has diminished the group’s influence on pricing.
Geopolitical tensions, such as conflicts involving Russia and Ukraine, and uncertainties in major political events like upcoming elections in various countries, including the US and France, also contributed to upward pressure on oil prices.
In terms of market indicators, attention will turn to the US manufacturing report from the Institute for Supply Management, expected on Monday. However, the focus remains heavily influenced by monetary policy discussions, with Federal Reserve Chair Jerome Powell scheduled to speak on Tuesday.
Additionally, recent data from the Energy Information Administration highlighted a four-month high in both production and demand for major petroleum products in April.
Looking ahead, with no OPEC ministerial meetings scheduled until next year, the market will rely on the group’s monthly reports to gauge developments and potential impacts on oil prices.
US Crude Oil Technical Analysis
Chart Compiled Using TradingView
The price of oil has surpassed the psychological resistance level at $82, extending its recent gains that have amounted to nearly $10 since the start of June. This upward movement has lifted the market above the downtrend line originating from the mid-June 2022 peaks, where it currently holds.
Attention is now turning to the significant resistance zone established in November last year, marked around $83.22. While this range has been breached previously, it tends to see quick retracements once broken. Presently, the market appears to be consolidating within a narrower range between $80.45 and $82.20.
The breakout direction from this current range will likely dictate the short-term trajectory, making it crucial to monitor as July progresses.
Crude oil prices have shown resilience as they breached the psychological barrier at $82, continuing a notable rally that has seen prices climb nearly $10 since the beginning of June. This surge has propelled the market above a downtrend line originating from mid-June 2022 peaks, marking a significant technical breakout.
Currently, market focus centers on a key resistance level established in November last year, positioned at $83.22. Despite previous breaches above this level, historical patterns suggest swift retracements back into the established range. As of now, the market appears to be consolidating within a narrower band, fluctuating between $80.45 and $82.20.
The resolution of this consolidation phase is poised to be pivotal for short-term price direction. Traders and analysts alike are closely monitoring whether the market breaks above the recent high of $82.20 or retraces towards the lower boundary near $80.45. This range-bound movement reflects a period of indecision and potential accumulation or distribution of positions before the next decisive move.
Looking ahead, several factors will influence the trajectory of crude oil prices in the coming weeks:
Factors Influencing Crude Oil Prices
Supply Dynamics
The agreement by the Organization of the Petroleum Exporting Countries (OPEC) and its allies to extend production cuts into 2025 has exerted upward pressure on oil prices. This decision aims to tighten global supply and reduce inventories, potentially supporting higher price levels in the medium term. However, the effectiveness of these cuts depends on adherence by member countries and geopolitical developments affecting production.
Geopolitical Tensions
Ongoing geopolitical tensions, including conflicts involving major oil-producing regions like Russia and Ukraine, contribute to volatility in oil markets. Any escalation or resolution of these conflicts can swiftly impact supply forecasts and market sentiment, influencing price movements.
Economic Indicators
Economic data releases, particularly those indicating trends in global economic growth and industrial activity, play a crucial role in shaping oil demand expectations. Reports such as US manufacturing data from the Institute for Supply Management provide insights into consumption trends and economic health, impacting oil price sentiment.
Monetary Policy
The stance of central banks, particularly the US Federal Reserve, regarding interest rates and monetary policy, influences investor sentiment across financial markets, including commodities like oil. Changes in interest rate expectations can affect the US dollar’s strength, thereby impacting oil prices inversely as they are denominated in dollars.
Technical Analysis
Technical indicators, including moving averages, trend lines, and momentum oscillators, provide traders with insights into potential price trends and reversal points. The breakout above the downtrend line from mid-June 2022 highs signals bullish momentum in the short term, but confirmation through sustained trading volumes and price action is crucial for validating further upside potential.
