Oil Price Fundamental Daily Forecast – Brent Set to Close August with Fifth Straight Monthly Rise

U.S. West Texas Intermediate crude oil futures are trading higher on Monday, helped by a surge in the price of international-benchmark Brent crude oil futures. Prices are being propped up by hopes of more global stimulus measures and a recovery in Chinese demand even as demand struggles to return to pre-COVID levels in a well-supplied market.

At 09:35 GMT, October WTI crude oil is trading $43.47, up $0.50 or 1.16% and December Brent crude oil is at $46.87, up $0.62 or +1.34%. Both markets are currently in a position to take out recently hit five-month highs.

Activity in China’s services sector expanded at a much faster pace in August, official data showed, as demand continues to recover from a coronavirus-induced slump.

Abu Dhabi Cuts Supply

Nearby Brent crude oil futures touched its highest level in five months, underpinned by a 30% cut in Abu Dhabi crude supplies. The futures contract is set to close out August with a fifth successive monthly price rise.

Abu Dhabi National Oil Company told its customers on Monday that it will reduce October supplies by 30%, up from a 5% cut in September, as directed by the United Arab Emirates government to meet its commitment on the recent OPEC+ agreement.

“With demand gradually recovering, this will allow the market to better absorb the inventory glut from earlier this year,” OCBC’s economist Howie Lee said.

Weak US Dollar, Surprising Strength in China’s Service Sector Supporting Prices

A weak U.S. Dollar is helping to draw fresh foreign demand for dollar-denominated crude oil after the Fed made an accommodative announcement last week that nearly guarantees interest rates would remain close to zero percent for several more years.

Activity in China’s services sector expanded at a much faster pace in August, official data showed on Monday, as demand across the economy continues to recover from a coronavirus-induced slump.

The official non-manufacturing Purchasing Managers’ Index (PMI) rose to 55.2 from 54.2 in July, data from the National Bureau of Statistics (NBS) showed.

Short-Term Outlook

Despite Monday’s upside momentum, crude oil continues to face hurdles going forward that could slow down the rally, or bring the move to a halt, namely demand struggles as COVID-19 cases continue to increase globally and excessive supplies, particularly gasoline and distillates. Traders are also questioning whether the weaker U.S. Dollar is actually helping to drive up demand.

“We believe that the impact of a cheaper dollar from current levels will see a minimal impact on crude purchases, irrespective of slightly more favorable crude pricing,” RBC Capital’s Mike Tran said in an August 27 note.

“The relationship between demand and price elasticity is blunted in the current environment, because oil is already cheap and readily available and there currently exist a dearth of buyers.”

Meanwhile, China’s crude imports in September are already being predicted to fall for the first time in five months as record volumes of crude are stored in and outside of the world’s largest importer, data from Refinitiv and Vortexa showed.

Finally, reflecting concerns about rising supplies and sluggish global economic recovery, hedge funds and money managers cut bullish wagers on U.S. crude to the lowest level in nearly four months, data showed on Friday.

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