Crude oil price outlook: demand concerns is no match for tight supplies

Crude oil price is on a rebound after dropping to a two-week low on Monday. Tight supplies have continued to buoy the market. Even so, demand concerns are weighing on prices.

Fundamentals

Crude oil price has found support in PBOC’s announcement that it will continue offering support to the economy amid the fresh COVID-19 wave and bearish growth outlook. In the statement released on Tuesday, the central bank indicated that it will ensure that liquidity remains “reasonable ample”.

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While PBOC’s remarks have boosted financial markets, concerns over Chinese demand are still weighing on the crude oil market. Investors appear to be using the situation in Shanghai as template for what could happen in Beijing. Beijing’s authorities have ordered the region’s residents to undergo three COVID-19 tests in the course of the week in an attempt to avoid a situation similar to that in Shanghai. The latter region is currently in its fourth week of lockdowns; an aspect that has continued to weigh on crude oil price.

However, the bearish demand outlook does not cancel out the concerns over tight supplies, which has buoyed oil prices above the critical level of $100 per barrel since late February.With this in mind, the aforementioned level will remain a crucial support zone even with the price swings expected in the short term.

Crude oil price forecast

Crude oil price has bounced back from Monday’s lows even as concerns over Chinese demand curbs its upward potential. In the previous session, Brent futures hit an intraday low of 99.63; its lowest level in two weeks. It has since rebounded back above the crucial zone of 100 to 103.06 as at 07:07 a.m GMT.

On a daily chart, it is still below the 25 and 50-day exponential moving averages. Based on these technical indicators, as well as the fundamentals, I expect the commodity to be subject to price swings for the remainder of the week.

In the short term, it will likely continue to find resistance along the 50-day EMA at 104.46. With additional momentum, the bulls may have an opportunity to push crude oil price to 106.60, which is along the 25-day EMA. On the flip side, it may pull back to Monday’s low of 99.63.