demand and supply points to more pain

Crude oil price continued rising on Wednesday as concerns about supply continued. West Texas Intermediate (WTI), the American benchmark, has risen for the past three straight days to trade at $73.75. Similarly, Brent rose to $78.50, which was a few points above last week’s low of $70.40.

Supply concerns remain

The main catalyst for crude oil prices this week has been a ruling by the International Court of Arbitration in France. The ruling ordered Turkey to pay Iraq about $1.5 billion in a long-standing crisis. Iraq accused Turkey of violating a 1973 pipeline transit agreement by allowing exports without its consent. 

Therefore, there are concerns that the ruling could have an impact on oil supplies in the region. In fact, Norway’s DNO ASA announced that it had started an orderly shutting down its oil fields in the region. The CEO said:

“It is unfortunate it has come to this given the likely impact of a continuing supply disruption on oil prices and at a fragile time in global financial markets.”

However, analysts believe that the world is well-supplied with oil. In the United States, companies like ExxonMobil and Chevron have continued pumping more oil in the past few months. And this month, Joe Biden’s administration allowed a new leasehold permit for oil production in Alaska, which could lead to more production in the coming years.

The US is averaging over 11.3 million barrels of oil per day, which has helped it become the biggest supplier to the European Union. In December, the bloc imported about 18% of its oil from the US, meaning that it has overtaken Russia. The US has also become a leading supplier of liquified natural gas (LNG) to the region.

Other countries are also boosting production. Saudi Arabia is producing over 10.7 million barrels per day. Other countries seen boosting production are Nigeria and Libya.

On the other hand, there are some concerns about demand. According to Bloomberg, Nigeria is struggling to find buyers of its oil due to the ongoing demonstrations in France. As a result, about 20-25 shipments were searching for buyers. France is one of the biggest buyers of Nigerian oil. 

Other European plants are also buying less oil because of annual maintenance. In a note, an analyst at Kpler said:

“The Nigerian backlog is a combination of higher freight costs, lower tanker availability — specifically into Europe — as well as lower overall demand for West Africa light sweet as crude from other regions is deluging markets.”

Therefore, the oil market is facing sluggish demand and higher supplies, which will likely push prices lower in the near term.

Crude oil price forecast

The daily chart shows that the WTI crude oil price has crawled back in the past few days. In doing so, the prices have managed to move to the 25-day and 50-day exponential moving averages (EMA). The Relative Strength Index (RSI) has drifted above the neutral point of 50. 

Notably, oil has formed a descending channel that is shown in red. It is attempting to move to the upper side of this channel. Therefore, WTI will likely retest the upper side at $78.33 and then resume the bearish trend to about $60.