On Monday (June 24th) in the European market, oil prices rebounded from the early decline and began to rise. The intraday price was $81.04 per barrel, up 0.38%. Initially, the market faced pressure from the strengthening of the US dollar due to renewed concerns about long-term high interest rates. High interest rates have reduced investors' risk appetite. Although this may limit the price increase throughout the entire trading period, due to the market's sensitivity to geopolitical events, especially in the Middle East, the market may quickly shift towards a bullish outlook.

The US dollar strengthens due to improved PMI data and political concerns

The US dollar opened stronger this week and then turned lower, with intraday trading at 105.5981, a decrease of 0.22%. The eight week high of the US dollar index is 105.91, which is not far from its current position. The focus of market participants is currently on the upcoming release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which is a favored inflation indicator by the Federal Reserve. Economists predict that the annual growth rate of the index will slow down to 2.6% in May. The weak data may enhance the expectation of the Federal Reserve cutting interest rates as early as September, and the current expectation in the futures market is that there is a 65% chance that the Federal Reserve will cut interest rates.

There are signs of a slowdown in the US economy

Citigroup strategists point out that increasing evidence suggests that the US economy is slowing, highlighting weak demand and a loosening of the labor market. They predict that this trend, combined with slower inflation data, may lead to the Federal Reserve starting to lower policy interest rates in September. The focus of the meeting will also be on geopolitical developments, including the first US presidential debate on Thursday and the first round of voting in the French general election this weekend.

The fundamentals of the oil market remain optimistic

Despite the current pressure from the strengthening US dollar, both benchmark crude oil contracts rose by about 3% last week. This growth is supported by signs of stronger demand for oil products from the world's largest oil consumer, the United States, and supply shortages caused by OPEC+production cuts. ANZ analysts have stated that US crude oil inventories have decreased, gasoline demand has risen for the seventh consecutive week, and aviation fuel consumption has returned to 2019 levels.

Geopolitical risks and supply disruptions support oil prices

The geopolitical tensions in the Middle East, especially the Gaza crisis, as well as the increase in Ukrainian drone attacks on Russian refineries, have also provided support for oil prices. In addition, Petroecuador, the national oil company of Ecuador, announced that the export of Nabo heavy crude oil suffered force majeure due to the closure of a key pipeline and oil well due to rainstorm.

According to data from Baker Hughes, the number of oil drilling platforms operating in the United States decreased by 3 last week to 485, reaching the lowest level since January 2022.

Market forecast: bearish outlook

Given the current strengthening of the US dollar and the possibility of long-term high interest rates, the short-term outlook for oil prices remains pessimistic. However, potential market fundamentals and geopolitical risks may provide some support to prevent a significant drop in oil prices. Traders should closely monitor upcoming economic data and geopolitical events to find further directions.

technical analysis

The fundamental outlook may turn bearish, but the technical chart pattern points towards high levels, with WTI crude trading above the 50 day moving average entry level of $78.93. This price, along with the short-term support point of $79.16, provides solid support.

The daily chart also shows that once the price breaks above $81.79, there is still a lot of room for oil prices to rise.