WTI breaks to fresh multi-month highs in $123s as bull trend continues

• WTI has broken to fresh multi-month highs in the $123s on Tuesday, in keeping with the recent bullish trend.  
• OPEC supply woes were in focus after the cartel said output fell in May (versus the planned hike).  
• Traders will be watching the China lockdown situation and macro reaction to this Wednesday’s Fed meeting.  

In fitting with the recent bullish trend, oil prices broke higher on Tuesday, with front-month WTI futures rallying into the $123s per barrel, where they trade up more than $2 on the day and nearly $6 higher versus Monday’s lows near $118. Concerns about a tight global oil market as demand in the northern hemisphere continues to rise during peak summer driving season, but supply fails to keep up, is keeping prices supported in the face of downside in risk assets such as stocks and other economically sensitive commodities.  

OPEC said on Tuesday that its output fell by 176,000 barrels per day in May, a large miss on the output hike that had been targeted under its deal with OPEC+ members. Smaller (mainly African producers) continue to struggle to lift output as much as permitted under the supply pact. Meanwhile, non-OPEC but OPEC+ member nation Russia, the world’s third-largest oil producer, continues to see its output fall as a result of Western sanctions over its invasion of Ukraine.  

WTI bulls continue to eye a test of early March highs in the $130 area, which looks likely given the bullish technicals, where dips have been consistently bought into since mid-April. The main threat to higher prices right now is if major Chinese cities go back into another strict lockdown like a few months ago, which would hit demand in the world’s second-largest oil-consuming nation. Wednesday’s Fed meeting also risks triggering fresh downside in global risk assets/upside in the US dollar, though oil has been resilient to these headwinds in recent weeks. US weekly Private API crude oil inventory data out at 20:30 GMT is also worth a watch.