Crude oil price forecast: EU sanctions package eyed as demand woes linger

Oil prices are pacing higher on Tuesday through Asia-Pacific trading as energy prices extend gains from April amid supply concerns stemming from Russian products. The European Union (EU) is reportedly drafting an embargo on Russian oil exports. Hungary and Slovakia, two members highly dependent on that oil, would likely be given an exemption under the embargo. That would help ease some supply pressures in Europe overall, but the net impact would likely push oil prices higher.

The European embargo is also likely to be a phased approach, allowing EU members additional time to ween themselves off Russian energy. Germany’s economy ministry reported that its Russian oil imports have already been scaled back substantially. The sanctions package is due to be distributed among bloc members on Wednesday. Oil prices may react to the upside or downside, depending on how aggressive the action plan is.

Those supply-side issues would likely be having a larger impact on prices were it not for ebbing demand elsewhere. The United States saw its factory activity fall for a second month in April, according to the Institute for Supply Management’s purchasing managers’ index (PMI). That PMI gauge, released overnight, fell to 55.4, matching the September 2020 low.

Meanwhile, China continues to grapple with the Covid-19 virus as Beijing sticks with its “Zero-Covid” strategy. Shanghai, a major financial hub, remains largely locked down, and a new round of testing is to be launched over the next week. Beijing, China’s capital city, while technically not under a lockdown, has seen social distancing rules ramped up. Under those rules, all restaurant dining has been banned, and Universal Studios, a major theme park, was shuttered on Sunday. Economists have already slashed growth forecasts, and more downgrades are likely on the way if China’s current course of action continues. That would likely bode poorly for oil prices.

Crude oil technical forecast

Prices are currently riding above the 50-day Simple Moving Average (SMA) as a supportive trendline from December helps to underpin the broader rally. Bears have attempted several breaks below that trendline but have so far failed to score a decisive move lower. That said, holding above the trendline will likely remain key. A break lower would open the door for prices to test the 100-day SMA.

Crude oil daily chart