Crude oil outlook: WTI extends recovery while copper spikes on 50pc tariff news

In a surprise announcement by Trump, copper prices spiked some +15% to record highs as the US president signalled 50% tariff on the metal are on the way. The news revived trade worries although risk assets didn’t falter as much as one would have expected. Still, the US dollar weakened from earlier levels, and this saw gold bounce off its earlier lows while crude oil price extended their gains. As far as crude oil is concerned, investors are wondering why oil prices are trading at their highest in about two weeks, when there is so much bearish news out there. After all, they argue, there was a larger than expected OPEC+ increase for the month of August just at the weekend. Despite this urgency to bring back more supplies online, oil prices have stopped falling further since that sharp de-escalation in the conflict between Israel and Iran a couple of weeks ago. What’s driving prices and what’s in for the crude oil outlook?

 

So why have oil prices bounced back?

 

One explanation can be attributed to the fact that there were worries about demand owing to trade concerns hurting the global economy. Instead, trade fears have receded sharply, judging by the reaction in equity markets in the last couple of months (we saw benchmark stock indices surge from their April lows to hit record highs). Inflation hasn’t picked up either, as had been feared due to the higher tariffs and many central banks have been cutting rates. At the same time, the US has passed a big budget and tax bill into law, which should boost economic output in the short-term all else being equal, even if it ultimately adds trillions to the national debt which is probably not in the interest of the economy in the long-term.

 

In the US, they are also nearing peak driving season when demand for gasoline surges. According to Reuters, citing travel industry statistics, a record number of Americans had been set to travel for the Fourth of July holiday by road and air. Ahead of peak driving season, we have seen several sharp drawdowns in US oil stocks, pointing to strong demand.

 

Globally, the macro backdrop hasn’t been too great but the fact that Saudi Arabia raised the August price for its flagship Arab Light crude to a four-month high for Asian customers at the weekend, this goes to show that demand for oil remains strong there.

 

So, the crude oil outlook has been supported in part because of receding fears about demand.  

 

But what about those OPEC+ cuts?

 

The OPEC+ agreed to raise production by 548,000 barrels per day in August. This was more than the 411,000-bpd hikes they made for the earlier three months. As a result, the group has returned nearly half of the 2.2 million-bpd voluntary cuts from eight OPEC producers back into the market. Further production hikes are expected for September, which according to Goldman Sachs will amount to 550,000 bpd.

 

The key question is whether this was the right move, and in the best interest of OPEC+. Clearly, the group doesn’t want to lose market share to non-OPEC producers. In fact, the US hasn’t been able to ramp up production meaningfully in recent months and therefore look set to produce less oil in 2025 than previously expected.

 

That’s according to the Energy Information Administration, which forecasts the world's largest oil producer to pump 13.37 million barrels per day of oil this year instead of last month's forecast of 13.42 million bpd. In part, this due to the lower oil prices discouraging drilling activity.

 

Indeed, the number of oil and natural gas rigs have been plunging according to energy services firm Baker Hughes. The latest data from the company shows rig counts falling to 425 from around 780 rigs in 2022's peak, marking a dramatic reversal and the lowest since October 2021.

 

It can be argued therefore that this might be the perfect opportunity for the OPEC+ to raise output as much as possible while the US drilling is not “drill-baby-drill”-ing.

 

Crude oil outlook: WTI technical analysis

 

WTI has bounced back from the neckline of the double bottom pattern between $63.60 to $65.00 area (shaded in grey on the chart). This area remains crucial long-term support, given that the lows of May 2023 and September 2024 were previously formed here, and now we are above it. Should WTI break back below this zone, the crude oil outlook would turn negative once again from a technical point of view.

 

 

One short-term support on the crude oil price chart above this zone worth pointing out is now seen at $67.50, marking resistance from last week.

 

At the time of writing, WTI was now testing potential resistance in the $68.50 region. As well as former support, the 200-day moving average also comes into play here, making it a key battleground. Above this zone, the next potential resistance is the psychological important handle of $70.00.

 

 

 

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R