November 21, 2023 (Investorideas.com Newswire) Crude oil prices have stabilized near the recent peak they reached last Friday, with gains of around 2.7% at $77.50 per barrel. This was attributed to concerns about the new sanctions imposed by the European Union on Russian oil, coinciding with increasing expectations of further OPEC cuts. This comes after the global economic slowdown has recently encouraged oil sellers.
OPEC+ is set to meet later this month, with the group believing that there may be a need for further production cuts to maintain oil prices above $80 per barrel. OPEC faced a strong reaction when it began supply reduction measures.
I believe that a potential factor for a decline in crude oil prices is the Venezuelan crisis. South American countries continue to take steps to boost production after the lifting of sanctions, potentially returning to suitable production levels by 2024, adding an additional challenge to oil supply and demand dynamics.
It is likely that U.S. inventories will see a slight increase this week, contributing to the continuation of the overall downward trend. Last week also witnessed an increase in U.S. oil inventories, the first in three weeks. I think this usually serves as an indicator of future production increases, supporting a further decline in prices.
Russia, the largest oil producer, and Saudi Arabia have consistently reduced their production throughout the year, leading to a decrease in global oil inventories and restraining the growth of global crude oil production in 2023. This aligns with the efforts of other OPEC+ members to maintain production at agreed-upon targets, further restricting global crude oil supply in 2023.
The Energy Information Administration expects the average OPEC+ crude oil production to be 38.2 million barrels per day in 2023, a decrease of 1.4 million barrels per day from 2022. This figure is expected to further decrease to 37.8 million barrels per day in 2024. With an expected increase in oil production outside OPEC by 2.2 million barrels per day in 2023, and continued growth in 2024 due to new projects in North and South America, I believe that the increasing production from outside OPEC, especially from the United States and Canada, will have a negative impact on medium- to long-term prices.
In my opinion, the main factor contributing to the expected decline in oil demand is concerns surrounding global economic development, with China and the Eurozone leading these worries. Many countries will face conditions of "inflationary recession" due to rising interest rates and inflation. The tight monetary policies adopted by most central banks worldwide have hindered both consumer and corporate activities. However, if China succeeds in stimulating its economy in response to the recent disappointing economic reports, there may be a sustained upward trend in oil prices in the near future.
From the above chart, the Energy Information Administration's expectations become clear: a combination of production cuts and increased demand is anticipated to lead to a decrease in global oil inventories, consequently causing oil prices to rise by the end of this year.
In the agency's research report, attention is drawn to the shift in global oil inventories from an increase in the first half to a decrease in the second half of 2023. During the first half, oil inventories increased at a daily rate of 600,000 barrels, and it is expected that this rate will decrease to 400,000 barrels per day in the second half. This suggests modest increases in inventories during 2024, which could negatively impact prices in the future.
Technical Analysis of the Oil (WTI) Prices:
The analysis of today's oil market suggests that the average production of OPEC+ crude oil may reach 38.2 million barrels per day for the remainder of 2023. This is approximately 1.4 million barrels per day less than the production in the same period of 2022. It is expected that oil prices will rise in the fourth quarter above the $100 per barrel level. However, this scenario remains a subject of debate regarding whether the price can sustainably close above this level after a strong third-quarter performance.
From my perspective, technical analysis indicates the difficulty of surpassing the current price resistance at $77.50 per barrel due to the price entering the overbought zone and the emergence of negative signals on the charts of technical indicators. As for the expected upward scenario between $95-100 for Brent crude and $90-95 for crude oil, it seems unrealistic currently in the face of declining oil demand. This coincides with the expectations of the U.S. Energy Information Administration for lower prices in the future, given the current decrease in oil demand.
From a technical standpoint, both crude oil and Brent crude saw an increase today, with both rising by approximately 2.7%. Some technical indicators suggest the possibility of the current recovery continuing within the overbought zone, as the daily candle closed near the peak. Despite the downward price gap during the weekend, oil prices continued to rise, now facing stubborn resistance near the 200-day moving average, which is around $78.13.
Looking at the chart, the price movement still maintains an overall bearish trend, and there needs to be a daily closing candle above the $78.55 level to confirm any continuation of the current upward movement. This would be a positive sign that prices could rise, reaching levels around $80 per barrel. However, the failure to break the mentioned resistance could lead to a retest of recent support levels or a potential new decline targeting the support zone at $70.12.
Support levels: $76.90 - $75.05 - $72.30
Resistance levels: $78.55 - $80.20 - $81.90
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