Oil Price Fundamental Daily Forecast – China Demand, Norway Strike Threat Offset Global Recession Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday with both markets reaching new contract highs.

The U.S. July futures contract inched through the June futures contract high at $121.17, while the August Brent contract continued to hover just below the July futures contract high at $123.25. In order to sustain the rally, these are key levels that must be overcome.

A failure to overcome previous tops won’t change the trend to down, but it will indicate that even the bulls are being cautious about buying strength.

At 11:49 GMT, July WTI crude oil futures are trading $120.62, up $1.21 or +1.01%. August Brent crude oil is at $121.66, up $1.09 or +0.90%. On Tuesday, the United States Oil Fund ETF (USO) settled at $89.98, up $1.59 or +1.80%.

Briefly, the catalysts behind today’s early strength are the easing of Chinese COVID-19 related lockdowns and a possible strike by Norwegian oil workers. Gains are likely being capped, however, by an unexpected rise in U.S. oil stocks, according to a private survey.

Focus Shifts to US Inventories

Late Tuesday, the American Petroleum Institute (API) reported a build this week for crude oil of 1.845 million barrels, while analysts predicted a draw of 1.8 million barrels.

According to Oilprice.com, the draw comes even as the Department of Energy released 7.3 million barrels from the Strategic Petroleum Reserves in the week-ending June 3.

The API also reported a build in gasoline inventories of 1.821 million barrels for the week ending June 3, on top of the previous week’s 256,000-barrel draw.

Distillate stocks saw a rise in inventory of 3.376 million barrels for the week, compared to last week’s 858,000-million-barrel increase.

Later today at 14:30 GMT, the U.S. Energy Information Administration (EIA) will report last week’s inventories levels. Traders are looking for a 2.6 million barrel drawdown in crude oil stocks.

Slight Boost from Norway Strike Threat

Crude oil received a slight boost early in the session after labor unions announced at least 647 Norwegian oil workers plan to strike from June 12 if state-brokered wage mediation fails. The strike would put some crude output at risk of shutdown, adding further to tight global supplies.

More Worries over Demand after World Bank Cuts Global Growth Forecast

The World Bank on Tuesday slashed its global growth forecast for 2022 by nearly a third, warning Russia’s invasion of Ukraine had compounded damage from the COVID-19 pandemic, and that many countries now faced recession.

Daily Forecast

The next major move in crude oil will be determined by the aggressiveness of traders. They are going to have to decide whether to chase prices higher at current lofty price levels, or play for a pullback into a support or value zone.

The fundamentals are overwhelmingly bullish, but the price action seems to be indicating the market is fairly priced at this time.

With the Russian sanctions out of the way, bullish traders are now going to have to rely on China demand to keep the momentum going. On the bearish side, further signs of a global recession could become the key issue that drives prices lower.