Oil Price Fundamental Daily Forecast – Bargain-Hunter Rally Being Capped by Demand Destruction Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher for a second session on Friday, but remained in a position to post its largest weekly decline since March.

Pressuring prices throughout the week were worries over the impact on fuel demand from travel restrictions and other lockdowns designed to slow the spread of the COVID-19 Delta-variant. Helping to underpin the market besides cheap prices were fresh Middle East geopolitical concerns that potentially threaten supply.

At 11:45 GMT, September WTI crude oil futures are trading $69.93, up $0.84 or +1.22% and October Brent crude oil is at $72.19, up $0.90 or +1.26%.

China Reports Most New COVID-19 Cases Since January amid Delta Surge

China reported on Wednesday the most new locally transmitted COVID-19 cases since January as some cities stepped up restrictions, cut flights and increased testing to get to grips with an outbreak driven mainly by the Delta variant, Reuters reported.

The travel restrictions and closures led Nomura to downgrade its July-September growth forecast for the world’s second-largest economy, as well as its full-year prediction, saying China’s zero-tolerance approach to the virus was becoming increasingly costly.

“The draconian measures taken by the government are resulting in potentially the most stringent travel bans and lockdowns in China since the spring of 2020,” the brokerage firm said in a note.

Additionally, Japan is poised to expand emergency restrictions to more prefectures, meanwhile, new COVID-19 cases in the United States have climbed to a six-month high.

“At least 46 cities have advised against traveling and authorities have suspended flights and stopped public transport. This could impact oil demand as it comes towards the end of the summer travel season,” ANZ said in a report.

Oil Prices Gain Support from Rising Tensions between Israel and Iran

Israeli jets struck what its military said were rocket launch sites in Lebanon early on Thursday in response to two rockets fired towards Israel from Lebanese territory, in an escalation of cross-border hostilities amid heightened friction with Iran.

This week’s cross-border fire came after a suspected drone attach a week ago Thursday on a tanker off the coast of Oman that Israel, the United States and Britain blamed on Iran. Two crew members, a Briton and a Romanian, were killed. Iran has denied any involvement.

Daily Forecast

With lockdowns and restrictions rising, crude oil traders will start paying closer attention to the global inventories outlook to see if they are having any major impact on gasoline and jet fuel demand. While not likely to change the major trend to down, lower demand for travel-related fuels should put a lid on any rally and could drive prices sharply lower over the near-term.

Although the tensions in the Middle East are garnering some attention, we don’t expect to see a major reaction in the markets until they lead directly to a disruption in supply.

As long as there are tensions, however, the chances of a nuclear deal between the United States and Iran will remain low. If there is a surprise agreement then look for weakness as traders price in the possibility of more crude supply hitting the open market.

For a look at all of today’s economic events, check out our economic calendar.