here’s the levels to watch in the new week

Crude oil price has begun the new week on the front foot as heightened demand confidence and tight supplies continue to define the market. Earlier on Monday, WTI futures – the benchmark for US oil- extended last week’s gains to trade at its highest level since early March. Brent futures also rose to a one-week high of $121.96 before pulling back to $120.46 as at 06:00 a.m GMT.

Market drivers

Saudi Arabia’s decision to hike crude oil prices for Asia – its largest market – by more than expected is one of the key reasons behind the commodity’s gains in the new week. Saudi Aramco has hiked its key Arab Light crude grade for the region by $2.10 per barrel as from June compared to the expected rise of $1.50.

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The state producer has also raised prices of all the grades for its customers in Mediterranean and north west Europe regions. However, prices for the US region remain the same for the second month in a row.

Saudi Arabia’s decision has boosted the demand outlook that has improved following the easing of COVID-19 lockdown in China and the driving season in the US. China is the leading importer of crude oil  while the US is the top consumer of the commodity worldwide.

According to the Transportation Security Administration (TSA), air travel numbers are nearing pre-pandemic levels. For instance, 1,981,408 individuals passed through the TSA checkpoints on Saturday. Compared to a similar period in 2021, the figure has increased by about 300,000. It is also over 1.6 million higher than in 2020 but 244,544 lower than in 2019.

In addition to the rise in demand, tight supplies are also behind the surge in crude oil price. Since the beginning of the year, the commodity has soared by over 50% with the persistence of the demand/supply imbalance.

Last week, OPEC+ announced that it will increase its output by 648,000 bpd in July and August. The figure is around 50% higher than its modest production increases of 400,000 bpd in recent months. Even so, some investors and analysts are sceptical about the coalition’s ability to meet this target. Indeed, most of its members have been struggling to meet the previously agreed amount. Indeed, UAE and Saudi Arabia are the only OPEC+ nations with ample spare capacity.

Crude oil price forecast

WTI futures has pulled back after hitting a 13-week high of $120.99 earlier in Monday’s session.  Even so, it remains above the 25 and 50-day exponential moving averages as shown on the daily chart. As at the time of writing, it was at $119.71.

While high volatility will likely define crude oil price movements in the new week, I expect it to remain above the crucial zone of $110. In particular, the range between Monday’s intraday high of $120.99 and the support level at $114.92 will be worth watching in the short term.

A pullback past the range’s lower border will likely have crude oil price find support along the 25-day EMA at $112.22. On the flip side, if the bulls are able to break the resistance at Monday’s high, they may have an opportunity to push it further to 124.70.