Oil Price Fundamental Daily Forecast – Drifting Lower as Buyers Struggle with Economic Uncertainty

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Thursday as traders weighed a large U.S. crude oil stockpile build and stronger U.S. Dollar against a potential strike-driven supply disruption.

At 08:22 GMT, October WTI crude oil is trading $87.76, down $0.72 or -0.81% and December Brent crude oil is at $92.36, down $0.76 or -0.82%. On Wednesday, the United States Oil Fund ETF (USO) settled at $72.74, up $0.73 or +1.01%.

Bearish Factor:  US Crude Stockpiles Rise for Second Straight Week

U.S. crude stocks and distillate inventories rose more than expected in the most recent week, while fuel demand remained below last year’s levels, the Energy Information Administration said on Wednesday.

The gains were boosted by an 8.4-million-barrel release from the U.S. Strategic Petroleum Reserve (SPR) into commercial stocks; those releases are set to end in October, and supply is expected to tighten at that time.

Bearish Factor:  Distillate Stockpiles Rise, Product Supplied Drops

Refinery crude runs rose by 93,000 barrels per day, boosting refinery utilization rates by 0.6 percentage points to 91.5%. The increase helped distillate stockpiles, which include diesel and heating oil, to build by 4.2 million barrels to 116 million barrels. Distillate stocks have been at lower-than-usual levels due in part to heavy export demand from Europe, and profit margins are high as refiners try to meet consumption headed into winter heating oil use.

Product supplied by refiners, a proxy for demand, was at 19.7 million bpd over the last four weeks, off by 7% from the same time period a year ago. Demand has sagged as the economy has started to slow in response to persistently high energy costs.

Bearish Factor: Demand to Weaken

The International Energy Agency (IEA) said on Wednesday demand growth would grind to a halt in the fourth quarter. Additionally, expectations the U.S. Federal Reserve will continue to tighten policy could drive the U.S. Dollar beyond its recent 24-year peak. This could weigh on demand because crude oil is a dollar-denominated commodity.

Bullish Factor:  Armenia Clashes with Azerbaijan

Traders are eyeing the skirmish between Armenia and Azerbaijan. A full-fledged conflict would risk dragging in Russia and Turkey, and destabilize an important corridor for oil and gas pipelines just as war in Ukraine disrupts energy supplies.

Short-Term Outlook

We’re expecting more sideways trading until at least the end of October when the U.S. will stop drawing crude oil from its Strategic Petroleum Reserve (SPR). This could put a cap on supply. However, there will still be an issue with demand especially since the Fed may raise its key interest rate by one-full basis point on September 21.

The higher the Fed increases rates, the closer the economy comes to recession, which will weigh on demand.