Crude Oil Forecast – Talking Points

  • Crude oil breaks above $71.00 as economic reopening gains steam
  • Increased US air travel is providing a tailwind for oil prices
  • October 2018 high shifts into focus as next major upside target

Crude oil prices rose to a near three-year high on Monday, driven by increasing demand-side pressure as the global economic recovery continues to fuel oil-hungry industries and consumer behavior. While social distancing measures in some form remain in place across the United States, restrictions have eased significantly across states. Crude oil rose as high as $71.78 overnight before pulling back slightly.

The near 3-year high in prices reflects not only growing demand, but also a carefully calibrated supply rollout from the Organization of the Petroleum Exporting Countries (OPEC). The energy cartel’s latest monthly report kept total demand at 96.58 million barrels per day (mb/d) but upgraded global oil demand for Q2 2021, offsetting a revision lower for the first quarter.

The upward Q2 revision was attributed to border opening and easing social distancing restrictions. Indeed, restrictions are coming off across the globe. California – the largest economy in the United States – is set to lift the majority of its Covid restrictions on June 15. The move follows reopenings in other large economic hubs across the US like Illinois and New York.

Moreover, air travel in the United States has been on the up. The US Transportation Security Administration (TSA) reported 2,097,433 passengers for June 13, a post-Covid record. The rise in air travel has boosted airline stocks, with Southwest Airlines seeing a near 30% rise year-to-date. This week’s inventory report from the Energy Information Administration (EIA) will shed further light on the US supply picture. According to the DailyFX Economic Calendar, oil stocks for the week ending June 11 are expected to drop 3 million barrels.

The optimism is expected to increase after US President Joe Biden and United Kingdom Prime Minister Boris Johnson agreed to open travel between the leaders’ respective countries as soon as possible. Overall, the global backdrop looks primed to continue delivering increased demand pressure on energy commodities.

Crude oil versus tsa travelers

Crude Oil Technical Outlook

The latest run higher has put crude oil prices decisively above the psychological 70 level. The next landmark stands at 76.90, a multi-year high from October 2018. While that point is almost 8% higher, the pace of upward momentum may soon see that level reached. Intermediate resistance from the 161.8% Fibonacci extension could impose some pressure on prices.

Negative divergence from the Relative Strength Index (RSI) and MACD oscillators are quickly fading against the upward strength. A near-term pullback isn’t off the cards, with the 70 handle serving as a likely support level. Overall, however, crude oil’s technical posture continues to strengthen, and the path of least resistance appears to be upward.

Crude Oil Daily Chart

crude oil chart

Chart created with TradingView

Crude Oil TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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