OPEC+’s Influence on Oil Supply

As 2024 progresses, the crude oil market remains under the watchful eyes of traders and analysts. A pivotal factor is OPEC+’s decision to maintain its oil output cuts of 2.2 million barrels per day into the first quarter. Originally set in November, this policy lays a foundation for potential supply tightness. Supported by insights from ANZ Research analysts, this move points towards a bullish trend for oil in the near term.

U.S. Federal Reserve’s Impact on Oil Demand

Complementing OPEC+’s decision is the U.S. Federal Reserve’s monetary policy. The Fed’s choice to keep the benchmark overnight interest rate within the 5.25-5.50% range, along with Chair Jerome Powell’s hints at decreasing rates, is poised to spur economic growth. This change is likely to boost oil demand, adding another layer to the price movements.

Geopolitical Tensions: The Israel-Hamas Factor

However, the direction of oil prices is not solely dependent on supply and demand mechanics. A critical external factor is the potential ceasefire between Israel and Hamas. Should a ceasefire be achieved, it could reduce geopolitical tensions, leading to a stabilization or modest dip in oil prices as the geopolitical risk premium decreases.

The Ceasefire’s Failure: A Catalyst for Price Increase

On the flip side, if the ceasefire does not materialize or collapses quickly, an escalation in regional tensions could push oil prices higher. Market sensitivity to geopolitical news was evident from the reaction to the recent, yet unconfirmed, ceasefire reports, which triggered a significant drop in oil prices.

Regional Conflicts and Oil Supply Routes

Further complicating the oil price forecast is the situation in the Red Sea. Despite ongoing conflicts, Russian oil tankers have sailed largely uninterrupted, suggesting that market fears of major supply disruptions might be overstated. However, recent actions by the Iran-aligned Houthi group, targeting a British merchant vessel, add to the geopolitical complexities impacting oil supply.

Conclusion: Volatility Ahead

In sum, while OPEC+’s output policy and the Fed’s interest rate decisions provide a backdrop, the short-term direction of crude oil prices will likely pivot on the evolving geopolitical situation, especially regarding Israel and Hamas. Market participants should prepare for potential volatility, driven by rapid changes in geopolitical sentiment.

Technical Analysis

Light crude oil futures are steady on Friday, following a steep sell-off the previous session. The plunge took place when sellers crossed to the weak side of the 200-day moving average at $76.50. This level is new resistance. Support is being provided by the 50-day moving average at $73.60.

A sustained move under the 50-day MA could lead to a quick test of the static support at $72.48. Prices could consolidate if this level is violated.