Oil Price Fundamental Daily Forecast – Early Signs of Short-Term Bottom as Dollar Weakens

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading higher on Tuesday, shortly before the regular session opening, and after yesterday’s successful test of last week’s multi-year lows.

The move may be an early sign of a bottom as investors react to extraordinary measures by the U.S. Federal Reserve to shore up the credit lines in the country. The moves are not designed to put in a bottom in the crude oil market, but rather to let the oil industry know the Fed has its back during this financial crisis.

You don’t have to be an expert to know, we’re not going to be confident that a bottom has been reached until we see it in the supply/demand numbers. At this time, supply is expected to surge after April 1 if Russia and Saudi Arabia decide to follow-through with their plans to flood the market with about 4 million barrels a day of crude oil. Demand will continue to be a problem as lockdowns to prevent the spread of coronavirus weigh on driving, air travel and factory production.

At 09:28 GMT, May WTI crude oil is trading $24.83, up $1.47 or +6.29% and June Brent crude oil is at $28.51, up $1.48 or +5.48%.

Traders are also getting a little excited about the possibility Washington will pass its fiscal stimulus package that remains stalled in the Senate. This could breathe some life into the oil industry, which faces major shutdowns and layoffs. Although it may not have a direct impact on oil prices, traders are likely to read it as a positive and could begin to cover shorts. This may be what we are looking at early Tuesday.

Daily Forecast

Essentially, today’s early strength is coming from the Fed’s rollout on Monday of an extraordinary array of programs to backstop an economy reeling from restrictions on commerce that healthcare officials say are needed to slow the coronavirus pandemic. And expectations that a $2 trillion coronavirus economic stimulus package will be voted into law fairly soon.

Another plus for crude oil prices on Tuesday is the weaker U.S. Dollar. The expected stimulus package may be weighing on the dollar as it will increase the cash supply. WTI Crude oil is a dollar-denominated asset so demand could increase if the dollar weakens further.