- Crude oil prices stable recently as traders weigh if bearish news is fully priced in.
- OPEC+ plans production increase in June amid rising supply, limiting crude’s upside potential.
- Tariff pauses ease demand concerns, but supply fears keep oil prices under pressure.
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Crude oil prices have been little changed in the last two and a half weeks, with investors largely sitting on their hands as they wonder whether most of the bearish news has been priced in for prices. With Trump also deciding to pause the higher tariff rates, demand concerns have eased somewhat.
So, it looks like the worst of the selling might be behind us now. Some short-term gains could be on the way. But with rising crude supplies, the longer-term view remains uncertain. This uncertainty should limit any upside potential in the near term.
Fears of Oversupply Keep Prices Under Pressure
The slide in recent months has been driven by fears over excessive supply and weaker demand growth. On the supply side, the OPEC+ has decided to increase oil production in recent months, with a 411,000-barrel-per-day increase set to take effect in June, as the cartel has decided to accelerate its rollback of previous cuts. On top of this, US oil companies have become more efficient, producing more with fewer wells and oil rigs.
Several oil forecasters are expecting further rises in oil output in the months ahead from both the OPEC+ and non-OPEC producers. Against this backdrop, it is difficult to turn positive on oil, even though much of this news should now be priced in.
What About Demand?
On the demand side of things, Trump’s decision to pause tariffs on the EU and lower them on China to allow for a trade deal has raised hopes that the world’s largest economies wouldn’t take as big a hit from tariffs as had been feared. Following weekend talks with the EU, Trump agreed to extend a deadline to negotiate tariffs with the bloc by more than a month after a 50% tariff threat was made on Friday, which sent risk assets tumbling.
Last month, he cut tariffs on the EU to 10% to allow time for negotiations. Trump’s softer tone and willingness to cut tariffs have helped to fuel a big rally in stock markets, although crude oil has so far not benefited much from this. This is perhaps because oil is demand-inelastic, and investors are more concerned about the rising supply of the stuff.
WTI Technical Analysis and Key Levels to Watch
From a technical point of view, WTI is not looking as bearish as it once did when both demand and supply concerns were at the forefront. After hitting a low of $55.12 in April, the WTI future tested the sub-$56 level again in early May, before bouncing back.
While it hasn’t yet created a higher high to suggest that the second re-test created a double bottom near the $55 handle, price action has been mostly bullish for much of the month of May. Bullish traders certainly need to see more constructive technical signs to grow confident that at least a near-term low has now been formed.
Key resistance for WTI comes in the range between $63.64 to $65.27. This range marks the lows from May 2023 and September 2024. Once strong support, this area has tuned into resistance ever since we broke below it in early April. Thus, for WTI to show its first major sign of a reversal, a clean break above this area is now needed. Until and unless that happens, any short-term bullish price action will have to be taken with a pinch of salt and treated as a counter-trend move.
Support for WTI comes in around the $60.00 - $60.30 area now, which it tested and held above on Friday and Monday. Below that you $58.00 and then recent lows near $56.00.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.
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