Oil has continually found itself being bought on dips over the last few months and that is due to the following reasons.

Chinese demand return

The most often cited reason is that Chinese demand for oil is set to gain rapidly this year as it shakes off its strict Covid-Zero restrictions. According to the Energy Information Administration, China’s daily demand for oil will reach 15M b/d. This will see a return to China’s expanding need for oil after its fall lower in 2022. See below.

The return to air travel from China is expected to be one of the major drivers of demand over the coming weeks.

World demand increases

According to Bloomberg, there is also a return to greater demand from India and other countries. In the EIA’s February report, they expect world consumption of oil to rise to 101.9 million b/d.

OPEC supply drops

See here for the dip in OPEC’s supply over the recent period:

The headwinds

However, the risks to this upside outlook are the global economy slowdown and higher interest rates reducing demand. Also, if US shale producers can take up some of the supply slack. However, CEO Chevron Mike Wirth told Bloomberg Television in March that US shale production is unlikely to quickly fill that gap. Bloomberg reports that research firm Enverus expects shale growth to be around 560K barrels a day for the US. So, in total that makes US shale production around 1.3 million bpd which is well below the 13million+ before Covid.

The technical outlook

On the monthly chart, oil has put in a number of strong monthly candles showing price rejection of the $70 region for US crude. There is also a false break of a harami inside bar on the monthly and a strong hammer reversal bar from December 2022. Technically the return to a $90 target looks exceptionally strong. See the chart at the very top.