Weak Dollar Outlook Props Up Oil Price But Demand-Side Could Erode Gains

Summary:
• The US dollar is likely to be weakened by the final Fed rate cut of 2024, but soft demand and Trump era policies could limit oil price gains.

Oil price rose on Wednesday as the market awaited a Fed interest rate decision expected to weigh down on the dollar. West Texas Intermediate (WTI) was up by 0.8% and traded at $70.29 per barrel, up by 0.8% on the day, while Brent was at $73.65, having risen by 0.5%. Despite the marginal gains, analysts forecast a decline in oil price in 2025, attributed to slowing demand and oversupply.

Weak demand outlook weighs down oil price

Both ING and Fitch have forecast lower oil prices next year, pointing to a slowdown in uptake by China and surplus supply by non-OPEC members. Fitch stated on Wednesday that it expects the commodity to average $70 per barrel in 2025, as a result of a moderating demand.

Oil price was already under pressure coming into the week following last week’s report by the International Energy Agency (IEA), which forecast a supply glut of 950k barrels per day in 2025. That figure could rise to 1.4 million bpd if OPEC+ stops its 2.2 million bpd cuts.

The prospect of a lower interest rate regime in the US has boosted oil temporarily. The Federal Reserve is expected to announce a 25 basis points cut on interest rates on Wednesday, which could weaken the US dollar. That translates to tailwinds for dollar-denominated crude oil, in the near-term.

However, analysts forecast that Donald Trump’s economic policies could result in one or two fewer cuts in 2025 compared to 2024. That could add downward pressure on oil price in the coming weeks. However, geopolitical tensions in the Middle East and the Russia-Ukraine war could bring supply-side disruptions to the commodity’s price.

Oil price prediction

WTI price pivots at $70.00, and the RSI calls fir further upside. The upward momentum will likely meet initial resistance at $71.05. However, continued control by the buyers could break above that barrier and test $72.10.

Conversely, a move below $70.00 will signal the onset of a downward momentum, with the first support likely to be at $68.90. Also, a break below that level will invalidate the upside narrative. If the momentum extends, it could send the price lower to test $67.95.