Oil Price Fundamental Daily Forecast – Falling Supply, Rising Vaccination Rates Expected to Be Supportive

U.S. West Texas Intermediate and international-benchmark Brent crude oil inched higher on Friday, bringing an end to a volatile week. The catalyst underpinning prices was the notion that supply will remain tight through the year despite concerns over demand destruction from the new COVID-19 outbreak and OPEC+’s decision to increase output by 400,000 barrels per day starting in August.

On Friday, September WTI crude oil settled at $72.07, up $0.16 or +0.22% and September Brent crude oil finished at $74.10, up $0.31 or +0.42%.

Friday’s close was a far cry from Monday’s steep losses which saw both benchmarks dropping about 7%, but those losses were pared with investors expecting demand to stay strong and the market to receive support from falling oil stockpiles and rising vaccination rates.

Commerzbank, ANZ Research Express Bullish Tone

“The demand concerns proved to be exaggerated, which is why oil prices have since recovered. Despite the expansion in oil supply, the oil market will remain slightly undersupplied until the end of the year,” Commerzbank said in a note.

Meanwhile, ANZ Research analysts said in a report that the market was starting to sense the OPEC+ increase will not be enough to keep the market balanced and inventories in the United States and across QECD countries would continue to fall.

US Drillers Add Oil and Gas Rigs for Fourth Week in a Row – Baker Hughes

U.S. energy firms added oil and natural gas rigs for a fourth week in a row for the first time since May, spurred by higher oil prices although growth in drilling has been modest as producers favor spending austerity, Reuters reported.

The oil and gas rig count, an early indicator of future output, rose seven to 491 in the week to July 23, its highest since April 2020, energy services firm Baker Hughes Co said in its closely followed report on Friday.

U.S. oil rigs rose seven to 387 this week, their highest since April 2020, while gas rigs were unchanged at 104.

“Although total rigs are…double, the amount recorded at the low point in mid-August of last year, drilling activity remains historically low, and one would have to return to August of 2016 (excluding last year) to find a lower rig count,” analysts at Gelber & Associates in Houston said in a note.

Short-Term Outlook

Last week’s price action suggests investors have already priced in the OPEC+ production cuts, which means the COVID-19 Delta variant crisis is the wildcard.

Despite worries earlier in the week about a renewed pandemic slowing down the pace of the global economic recovery, it looks as if traders have already priced in the worst case scenario and aren’t as worried about the outbreak.

However, we know from experience that this can change at any time so be on your toes for any unexpected lockdowns that could affect demand, particularly in the travel and airline industries.