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Oil Price Fundamental Daily Forecast – Firm Trade Suggests Rising Infections Having Minimal Impact on Demand

By:
James Hyerczyk
Published: Jul 27, 2021, 12:16 UTC

Bullish traders are banking on global oil markets to remain in deficit despite a decision by OPEC+ to raise production through the rest of the year.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday with both contracts in a position to accelerate through the top end of a key technical retracement area. The Brent futures contract appears to be strengthening more that the U.S. contract, widening the spread between the two issues.

The price action the last two sessions seemed to be indicating a battle between those traders who believe the surge in coronavirus cases would lead to demand destruction and those who believe supply is tight despite increased output from OPEC+. Today’s early trade seems to be indicating traders are playing down the potential demand issues, putting the markets back on track to resume its longer-term uptrend.

At 11:44 GMT, September WTI crude oil is at $72.10, up $0.19 or +0.26% and September Brent crude oil is at $71.81, up $0.31 or +0.42%.

Analysts at Reuters seem to be in agreement with this assessment saying, today’s steady trade is being fueled by investors betting that tight supply and rising vaccination rates will help offset any impact on demand from surging COVID-19 cases worldwide.

Potential Travel Restrictions Feeding Today’s Demand Concerns

Reuters is reporting the Unites States will not lift any existing travel restrictions “at this point” due to concerns over the highly transmissible COVID-19 Delta variant and the rising number of U.S. coronavirus cases, the White House confirmed on Monday.

The decision, which was first reported by Reuters, comes after a senior level White House meeting late on Friday. It means that the long-running travel restrictions that have barred much of the world’s population from the United States since 2020 will not be lifted in the short-term.

The announcement almost certainly dooms any bid by the U.S. airlines and the U.S. tourism industry to salvage summer travel by Europeans and others covered by the restrictions. Airlines have heavily lobbied the White House for months to lift the restrictions and some say the industry may now have to wait until September or later for a possible revision.

Supply to Remain Tight Over Next Five Months

Bullish traders are banking on global oil markets to remain in deficit despite a decision by OPEC+ to raise production through the rest of the year.

“Robust road traffic data across most major regions suggest rising infections are having minimal impact,” ANZ Research analysts said.

Furthermore, analysts tracking mobility data remain confident about fuel demand, counting on vaccinations to guard against strict new lockdowns.

Daily Forecast

Traders are cautiously rebuilding their bullish tone as reports continue to point toward a much slower pace of the spread of the virus than anticipated earlier in the month. There are mixed signals, however, coming from the two potential flash points that investors are monitoring.

In potentially bearish news, Olympic host city Tokyo is on track to report a record number of coronavirus cases on Tuesday. On the bullish side, however, Britain reported its lowest daily total of new COVID-19 cases since July 4 on Monday, suggesting a recent surge in infections has passed its peak.

Is this the “calm before the storm” or the “light at the end of the tunnel”? The price action seems to suggest that traders are betting on the latter.

In other news, look for another drawdown in crude oil and gasoline stocks when the American Petroleum Institute (API) reports its inventories figures at 20:30 GMT.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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