Oil Price Fundamental Daily Forecast – Announcement to Reopen Economy Could Trigger Short-Covering Rally

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly higher shortly before the regular session opening on Thursday. The markets are also trading inside yesterday’s range, which tends to indicate investor indecision or impending volatility. Given the bearish fundamentals, in this case it probably indicates investors are regrouping or taking a breather from the recent price plunge before resuming the sell-off.

At 09:54 GMT, June WTI crude oil futures are trading $26.68, up $0.64 or +2.46% and June Brent crude oil is at $28.34, down $0.65 or +2.35%.

Wednesday Recap

Nearby WTI crude oil fell to an 18-year low and Brent lost more than 6% on Wednesday after the United States reported its biggest weekly inventory build on record, while global demand is expected to fall to quarter-century lows due to the coronavirus pandemic.

International Energy Agency Predicts Demand Will Dive

The International Energy Agency (IEA) on Wednesday forecast a 29 million barrel per day (bpd) dive in April oil demand to levels not seen in 25 years and warned no output cut by producers could fully offset the near-term falls facing the market.

The IEA forecast a 9.3 million bpd drop in demand for 2020 despite what it called a “solid start” by producers following a record deal to curb supply in response to the coronavirus pandemic.

“By lowering the peak of the supply overhang and flattening the curve of the build-up in stocks, they help a complex system absorb the worst of this crisis,” the Paris-based IEA said in its monthly report.

“There is no feasible agreement that could cut supply by enough to offset such near-term demand losses. However, the past week’s achievements are a solid start.”

EIA Reports Record Rise in Crude Supplies

The Energy Information Administration reported a rise of 19.2 million barrels in domestic crude supplies for the week ended April 10. That was the 12^th straight weekly climb. Analysts polled by S&P Global Platts expected the data to show a rise of 10.1 million barrels.

Data from the EIA also showed that total U.S. crude production fell by 100,000 barrels a day to 12.3 million barrels. Gasoline supply rose 4.9 million barrels and distillate stockpiles added 6.3 million barrels, the EIA said. The S&P Global Platts survey had shown expectations for a supply rise of 7.1 million barrels for gasoline, and distillate stockpiles were expected to climb by 1.8 million barrels.

Short-Term Outlook

The fundamentals are overwhelmingly bearish, which likely means today’s modest gains are being fueled by a technical factor. Furthermore, we could be looking at profit-taking or position-squaring ahead of Thursday’s U.S. Weekly Jobless Claims report.

This report could trigger a reaction in the crude oil market because its data is often used to predict future demand. Traders are looking for the report to show the loss of about 5 million jobs. This will bring the four-week total to about 21 million jobs lost since the U.S. ordered a shutdown in order to curb the damage from the coronavirus.

The more jobs lost, the worse it will get for crude oil demand since fewer workers will be driving to their places of employment.

On the bearish side of the equation, “We have crude oil backing up in the system in epic fashion,” John Kilduff, a partner at Again Capital in New York, said after the U.S. government’s weekly oil inventory report. “This is probably one of the most bearish, if not darkest reports I’ve ever seen.”

On a positive note, the Trump administration may be getting ready to announce the process of reopening the economy. This could trigger a short-covering rally if he says in about two weeks, but if he extends the lockdowns into the end of May then prices could plunge further.