Introduction: In a market analysis we brought you in mid-April, we explained that the price of US crude oil on the commodities market had broken a pivotal technical level, the price of $65 per barrel of Texas crude oil (WTI). As the benchmark for the price of black gold in the United States, this further fall in the price of oil is a very good thing for US disinflation, with the nominal PCE price index falling to 2.3% at the latest update.
Bear in mind the following two factors: oil remains bearish as long as it stays below the new technical resistance of $65. The bearish fundamentals are multiple and concern both supply and demand. Finally, this gives grounds for optimism that inflation will continue to fall, despite the trade war.
1) Oil supply & demand: the fundamentals are bearish
The two main factors driving down the price of oil in the energy segment of the commodities market are as follows, and concern oil supply.
- New historical records for US oil production, which could reach 28 million barrels per day by 2028 under the Trump Administration's drilling policy. By 2025, US oil production is expected to exceed 22 million barrels/day, or more than 20% of global production (see table below, taken from OPEC's latest monthly report). This massive US oil production is the primary explanation for the downward trend in the price of oil on the stock market.
- Added to this is the renewed rise in production by OPEC member countries, which between them account for 25% of world production, and even 33% if we include Russia as part of OPEC+. Indeed, strong opposition has erupted within the 12 member countries, and the leader among them (Saudi Arabia, with 9 million barrels a day on its own) has decided to increase its production once again in order to sell more, increase its market share but also drive prices down, and thus “punish” member countries that have not respected production quotas in recent months (notably Iraq and Kazakhstan). This combined increase in production from the USA, Saudi Arabia and Russia is putting downward pressure on prices.
2) Technical analysis of the oil price reveals a bearish message below resistance at $65
The break of support at $65 this spring therefore has strong fundamental justifications, and according to the chartist rule of polarity change, this price level now constitutes major technical resistance.
Only the reintegration of this level, i.e. a breakout of resistance on a daily closing basis, would signal a bullish reversal in the price of oil on the stock market.
Conclusion: Oil supply (i.e. production) will continue to have a bearish effect on prices this year. For the price of black gold to rebound in any significant way, trade agreements between the USA and China, and the USA and the EU, would be needed to revive the prospects of rising global oil demand. In the absence of this, the price is technically bearish below $65, with the next major support at $45/50.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
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Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
Bear in mind the following two factors: oil remains bearish as long as it stays below the new technical resistance of $65. The bearish fundamentals are multiple and concern both supply and demand. Finally, this gives grounds for optimism that inflation will continue to fall, despite the trade war.
1) Oil supply & demand: the fundamentals are bearish
The two main factors driving down the price of oil in the energy segment of the commodities market are as follows, and concern oil supply.
- New historical records for US oil production, which could reach 28 million barrels per day by 2028 under the Trump Administration's drilling policy. By 2025, US oil production is expected to exceed 22 million barrels/day, or more than 20% of global production (see table below, taken from OPEC's latest monthly report). This massive US oil production is the primary explanation for the downward trend in the price of oil on the stock market.
- Added to this is the renewed rise in production by OPEC member countries, which between them account for 25% of world production, and even 33% if we include Russia as part of OPEC+. Indeed, strong opposition has erupted within the 12 member countries, and the leader among them (Saudi Arabia, with 9 million barrels a day on its own) has decided to increase its production once again in order to sell more, increase its market share but also drive prices down, and thus “punish” member countries that have not respected production quotas in recent months (notably Iraq and Kazakhstan). This combined increase in production from the USA, Saudi Arabia and Russia is putting downward pressure on prices.
2) Technical analysis of the oil price reveals a bearish message below resistance at $65
The break of support at $65 this spring therefore has strong fundamental justifications, and according to the chartist rule of polarity change, this price level now constitutes major technical resistance.
Only the reintegration of this level, i.e. a breakout of resistance on a daily closing basis, would signal a bullish reversal in the price of oil on the stock market.
Conclusion: Oil supply (i.e. production) will continue to have a bearish effect on prices this year. For the price of black gold to rebound in any significant way, trade agreements between the USA and China, and the USA and the EU, would be needed to revive the prospects of rising global oil demand. In the absence of this, the price is technically bearish below $65, with the next major support at $45/50.
DISCLAIMER:
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only. The presented idea (including market commentary, market data and observations) is not a work product of any research department of Swissquote or its affiliates. This material is intended to highlight market action and does not constitute investment, legal or tax advice. If you are a retail investor or lack experience in trading complex financial products, it is advisable to seek professional advice from licensed advisor before making any financial decisions.
This content is not intended to manipulate the market or encourage any specific financial behavior.
Swissquote makes no representation or warranty as to the quality, completeness, accuracy, comprehensiveness or non-infringement of such content. The views expressed are those of the consultant and are provided for educational purposes only. Any information provided relating to a product or market should not be construed as recommending an investment strategy or transaction. Past performance is not a guarantee of future results.
Swissquote and its employees and representatives shall in no event be held liable for any damages or losses arising directly or indirectly from decisions made on the basis of this content.
The use of any third-party brands or trademarks is for information only and does not imply endorsement by Swissquote, or that the trademark owner has authorised Swissquote to promote its products or services.
Swissquote is the marketing brand for the activities of Swissquote Bank Ltd (Switzerland) regulated by FINMA, Swissquote Capital Markets Limited regulated by CySEC (Cyprus), Swissquote Bank Europe SA (Luxembourg) regulated by the CSSF, Swissquote Ltd (UK) regulated by the FCA, Swissquote Financial Services (Malta) Ltd regulated by the Malta Financial Services Authority, Swissquote MEA Ltd. (UAE) regulated by the Dubai Financial Services Authority, Swissquote Pte Ltd (Singapore) regulated by the Monetary Authority of Singapore, Swissquote Asia Limited (Hong Kong) licensed by the Hong Kong Securities and Futures Commission (SFC) and Swissquote South Africa (Pty) Ltd supervised by the FSCA.
Products and services of Swissquote are only intended for those permitted to receive them under local law.
All investments carry a degree of risk. The risk of loss in trading or holding financial instruments can be substantial. The value of financial instruments, including but not limited to stocks, bonds, cryptocurrencies, and other assets, can fluctuate both upwards and downwards. There is a significant risk of financial loss when buying, selling, holding, staking, or investing in these instruments. SQBE makes no recommendations regarding any specific investment, transaction, or the use of any particular investment strategy.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. The vast majority of retail client accounts suffer capital losses when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Digital Assets are unregulated in most countries and consumer protection rules may not apply. As highly volatile speculative investments, Digital Assets are not suitable for investors without a high-risk tolerance. Make sure you understand each Digital Asset before you trade.
Cryptocurrencies are not considered legal tender in some jurisdictions and are subject to regulatory uncertainties.
The use of Internet-based systems can involve high risks, including, but not limited to, fraud, cyber-attacks, network and communication failures, as well as identity theft and phishing attacks related to crypto-assets.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.
This content is written by Vincent Ganne for Swissquote.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
This content is intended for individuals who are familiar with financial markets and instruments and is for information purposes only and does not constitute investment, legal or tax advice.
Disclaimer
The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.