Crude Oil Outlook: Despite 1% Fall on Thursday, Bullish Trend Holds Steady Amid Tight Supply, Alberta Wildfires, and Geopolitical Risks.....
~ Sumon Mukhopadhyay.
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Global supply remains tight, demand is seasonally strong, wildfires in Canada threaten output, and geopolitical tensions keep a risk premium alive in prices.
While short-term data blips may cause fluctuations, oil fundamentals still point towards higher prices in the coming weeks.
Alberta Wildfires Could Squeeze Canadian Oil Supply:
As of July 3, 2025, 62 wildfires are burning in Alberta’s Forest Protection Area, of which 19 are out of control, covering over 679,000 hectares since the start of the year. Weather forecasts suggest warmer and drier conditions ahead, increasing the risk of further escalation.
- Alberta is a key oil-producing region, contributing nearly 4 million barrels per day to global supply.
- Any disruption to oil sands production, pipelines, or refining capacity due to wildfires can tighten the global crude market.
- Over 1,600 firefighters are battling the blazes, with help from the US, Australia, Costa Rica, and multiple Canadian provinces.
- The situation remains volatile, and if wildfires spread closer to oil infrastructure, we could see localized shutdowns or slowdowns.
This latent supply risk adds to the bullish undertone of oil markets, especially when existing supply growth is already constrained.
Now Let's Look At Bearish Factors in the Short Term:
While the long-term outlook is bullish, recent data points have triggered a modest pullback in prices:
U.S. Crude Inventories: Contrary to expectations of a drawdown, crude stockpiles rose by 3.8 million barrels for the week ending June 27, 2025. Analysts had predicted a draw of around 1.8 million barrels, so this reversal created bearish sentiment in the short term.
Gasoline Demand Concerns: U.S. gasoline consumption dropped to 8.6 million barrels per day, lower than the seasonal norm of 9 million bpd, considered a line of health for the summer driving season. Lower-than-expected road fuel demand could indicate weak consumer activity or fuel-switching behavior.
Saudi Arabia's Export Surge: Saudi Arabia increased crude exports by 450,000 bpd in June, the largest rise in over a year. However, it's worth noting that total OPEC+ exports remain largely flat since March.
OPEC+ Output Hike Already Priced In: The alliance plans to increase production by 411,000 bpd in August 2025. However, this decision was well-telegraphed and has already been priced into markets. Moreover, the scale of the hike is small compared to the expected surge in summer demand.
Bullish Forces Driving the Market:
Despite these challenges, the underlying bullish narrative remains intact. Here's why:
🧨Global Oil Demand Near Record Highs (~103 million bpd)
Demand continues to be robust, driven by:
- India and China, where refining throughput and industrial activity remain high.
- Summer cooling demand in the Middle East and parts of Asia, increasing electricity generation.
- Aviation and tourism activity continues to pick up globally, putting pressure on jet fuel supplies.
Even if U.S. gasoline demand is sluggish, global consumption continues to underpin price support.
🧨OPEC+ Output Hike Too Modest:
The upcoming 411,000 bpd increase in August covers only about 0.4% of global oil demand — falling short of the typical 1.5 to 2 million bpd seasonal demand increase seen in Q3. OPEC+ compliance rates remain above 90%, and many members lack spare capacity to expand further, limiting any meaningful relief on the supply side.
🧨Geopolitical Risk Premiums Persist:
- Iran has suspended cooperation with the U.N. nuclear watchdog, raising the likelihood of increased sanctions or conflict, which could curb its 1.7 million bpd export flow.
- Houthi threats in the Red Sea continue to jeopardize shipping lanes, with around 10% of global oil passing through the region.
- The Strait of Hormuz, the world’s most critical chokepoint, remains tense — with 18–19 million bpd of oil and refined products at risk in the event of escalation.
These flashpoints keep a permanent layer of risk premium baked into prices.
🧨Refining Bottlenecks and Inventory Tightness:
- Refinery maintenance and unplanned outages in Europe and Asia are limiting distillate and gasoline production.
- OECD commercial inventories are reportedly 97 million barrels below last year’s levels, according to the IEA.
- China’s strategic reserve levels are at multi-year lows, increasing the likelihood of a restocking cycle in the second half of 2025.
🧨Non-OPEC Supply Challenges:
- U.S. shale production is flatlining due to declining rig counts, well productivity issues, and rising costs.
- Brazil and Guyana, once expected to provide substantial new barrels, face delays in project rollouts, constraining additions until late 2026.
🧨Policy & Economic Stimulus Expectations:
- The newly signed U.S.–Vietnam trade deal is expected to stimulate industrial growth and boost energy demand in Southeast Asia.
- Investors are eyeing U.S. jobs data and Fed commentary, with growing anticipation of interest rate cuts in H2 2025. A looser monetary environment typically supports energy demand by stimulating growth.
📈 Technical Analysis: Price Action Still Points Higher:
▶️ WTI Crude Oil (Light Sweet):
- Price on July 3: $66.94
- The market tested and held above the 200-day EMA, which sits near $65. This level has acted as strong dynamic support since March.
- A recent breakout above a triangle pattern at $67.59 suggests potential for a retest of $69.50–70.00.
- Key supports are at:
- 38.2% Fibonacci retracement: $66.46
- 50% Fibonacci: $66.11
- Trend channel bottom: $65.00
▶️ Brent Crude:
- Price on July 3: $67.47
- Currently rangebound but forming higher lows, indicating sustained buying on dips.
- If it breaks decisively above $70, potential upside targets include:
- 38.2% Fib: $70.14
- 50% Fib: $71.73
- AVWAP (April swing): ~$72.12
- 61.8% Fib: $73.31
▶️ Momentum Indicators:
- RSI levels remain above 50 for both WTI and Brent, signaling upward momentum without yet reaching overbought territory.
- Volume on recent dips is light, suggesting pullbacks are being absorbed, not dumped.
Conclusion: Bullish Setup Intact Despite Thursday's Decline:
Thursday’s 1% pullback in crude oil prices was a technical breather after recent gains and a reaction to softer U.S. gasoline data. However, the larger story remains bullish:
- Global demand is firm, led by Asia and summer seasonality.
- OPEC+ output remains constrained, and non-OPEC growth is lagging.
- Alberta wildfires, if intensified, could choke a major oil hub.
- Geopolitical tensions are far from resolved.
- Technical patterns show strong support zones and upside continuation potential.
As long as key support levels ($65–66 for WTI and $67–69 for Brent) hold, every dip looks like a buying opportunity, not a reversal.
Unless a major demand collapse or ceasefire breaks geopolitical tension entirely, $70–75 crude looks achievable in Q3.
