Oil Price Fundamental Daily Forecast –Emerging Headwinds Could Change the Trend to Down

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower at the mid-session but near the high of the daily range. The choppy price action suggests we may be looking at profit-taking or position squaring ahead of the weekend. It has also put the market in a position to finish flat for the week.

The price action is an honest reflection of the fundamentals this week with a little bit of bullish news followed by a little bit of bearish news. Short-term, the developments this week appear to be offsetting. But over the mid-term, a theme should develop.

At 16:40 GMT, January WTI crude oil is trading $80.32, down $0.10 or -0.12% and January Brent crude oil is at $82.64, down $0.23 or -0.28%.

Three problems for the bulls have emerged since Wednesday. The first is the surge in the U.S. Dollar, the second is the possible release of oil from the U.S. Strategic Petroleum Reserve and the third is OPEC’s forecast for lower demand during the fourth quarter.

Dollar Set for Biggest Weekly Rise in 5 Months as Yields Rise

The sharp rise in the U.S. Dollar this week just made crude oil more expensive to foreign buyers. This could lead to a drop in exports, which could increase domestic supply.

The greenback has been supported this week by a surprisingly strong U.S. inflation print which shocked the markets and prompted investors to advance their bets on a U.S. rate hike to as early as mid-2022.

If the Fed confirms the shift and adds an additional 1 to 2 rate hikes to its tightening plan then expect the dollar to remain strong into the first half of 2022. This could keep a lid on crude oil prices.

Will He or Won’t He and When?

WTI crude oil is poised to end the week with its third weekly decline in a row after sharp swings driven by a strengthening dollar and speculation on whether President Joe Biden might release oil from the U.S. Strategic Petroleum Reserve to cool prices.

The answer to the question appears to be “he will” because according to the latest report from the Energy Information Administration (EIA), crude oil has already been released to commercial users. I question whether high gasoline prices constitute an actual emergency deeming the release necessary.

‘Nothing Cures High Prices Like High Prices’

The Organization of the Petroleum Exporting Countries (OPEC) on Thursday cut its world oil demand forecast for the fourth quarter by 330,000 barrels per day (bpd) from last month’s forecast as high energy prices hamper recovery from the economic fallout from the COVID-19 pandemic.

Short-Term Forecast

I see a potential problem with OPEC cutting its demand forecast. It may be possible for a drop in demand to become so severe that OPEC and its allies decide to pause its plan to raise production by 400,000 barrels per day (bpd) for the next several months.

If they decide not to pause or implement the move too late then they risk increasing supply at a time when the market is already oversupplied. This would be bearish for crude oil prices during the first quarter of 2022.