That will be an important level to watch before a potential drop towards $90 next. Recent sentiment hasn’t been too kind for the oil market outlook, even if OPEC+ is not going to mess things up. Let’s take stock of the situation.
China lockdowns, geopolitical tensions continue to threaten a further slowdown in the global economy
Rising inflation pressures are also weighing on the consumption outlook
Reserve releases by the US and IEA have led to a narrowing in backwardation spreads i.e. less worries about near-term availability of oil supply
So, while global inventories continue to look rather tight, the factors above are working against oil prices at the moment. There is good reason to expect a pullback but I would say that the main argument still holds. That being the first two factors are things that will pass eventually and the final factor is one that is only a temporary fix. Reserve releases do not help to restore the structural imbalances in the oil market.
As such, I would still side with the view that oil prices are going to stay elevated barring any destruction demand or a crash on recession fears. If there is a scenario like the latter, it would make for a perfect dip buying opportunity. Otherwise, any further pullbacks will also be attractive to scale more into longs in my view.
A push towards $90 may draw in some buyers but I think around the levels of $80 to $85, that is where we will see stronger plays from oil bulls in securing longer-term positions. At least I know I will.