Has WTI Bottomed Out at $70?

Over the past year, WTI prices have reached $70 per barrel but failed to surpass this level. Now that the recovery pushes prices towards $80, what are the chances of oil prices reaching triple digits again?

Higher Prices But What About Supply?

One of the primary contributing factors to inflation, as reported for February, was higher gasoline prices. However, higher crude oil prices were just one element explaining rising fuel costs. The other? Refinery outages have actually made distillates more scarce while inventory levels have increased, creating an unusual case where prices rise with inventories. BP's Whiting refinery, with a capacity of 435K barrels per day, was offline for most of February. But it has been ramping back up to full production this month.

Despite geopolitics and refining challenges, crude oil prices have settled into a relatively narrow range. Attacks on refineries and production facilities in Russia, combined with the ongoing blockage of the Red Sea route, have been offset by softer demand from China, leaving global crude prices trending sideways. OPEC disclosed minor overproduction in February (over 100K bbl/day) as Libyan output returned online. However, analysts agree that the cartel's voluntary oil production cuts, pushing up crude prices, will remain in place for at least another quarter.​

Uncertain Forecasts for Crude Oil Prices

The future direction of crude oil prices relies heavily on forecasts for demand. However, the two major agencies that issue forecasts in this area, OPEC and the IEA, currently disagree to the widest extent seen since 2008. OPEC forecasts that demand will increase by 1 million bpd more than the IEA's estimate. But both agencies at least concur that supply is not keeping pace with demand in the short term. The EIA anticipates that WTI will average between $75-80 over the next 12 months, a relatively flat outlook.

OPEC provided a more optimistic economic outlook to justify increasing demand projections, particularly from China. The cartel attributed the recent rise in oil prices to strengthening market fundamentals but refrained from issuing a price forecast. Declining US inventories have driven the price of crude oil to a 4-month high, slightly surpassing Fitch's forecast range of $75-78 for WTI in 2024, reflective of expectations of an oil deficit this year.​

WTI in Wedge Pattern Following iH&S

WTI crude oil prices have risen to retest the $80 per barrel level, forming a wedge pattern typically followed by pullbacks before continuing the trend. Should the $76 level retest and hold as support, it could push prices towards the golden pocket of $81.50, potentially opening the door for a move to $85 next. However, a slide lower would bring $72 back into focus and perhaps the lows from last year as well, likely invalidating the potential inverse head-and-shoulders pattern supporting higher prices.

Source: SpreadEx / Spot, Light Crude

Key Takeaways

While WTI crude oil prices hit $70 in 2023, the recent recovery to $80 raises questions about the potential for a return to triple digits. Higher gasoline prices have contributed to inflation, impacted by refinery outages reducing distillate supply alongside inventory builds. Forecasts for crude oil demand and supply differ, with OPEC predicting 1 million bpd more demand than the IEA, but both agree that supply cannot keep up with short-term pace. The EIA estimates for WTI averages $75-80, relatively flat, while Fitch forecasts $75-78 on expected deficits. Geopolitical tensions and refining issues have been balanced against slower Chinese demand, keeping crude prices within a narrow range.​