Oil Price Fundamental Daily Forecast – Fresh COVID Restrictions in China Encouraging Profit-Taking
U.S. West Texas Intermediate crude oil is edging lower in a rangebound trade on Friday. Nonetheless, the market remains on track to post its seventh consecutive weekly increase.
Underpinning the market is robust fuel demand in the United States, while capping gains are fresh COVID-19 restrictions in Shanghai and Beijing.
At 14:14 GMT, August WTI crude oil is trading $118.79, down $0.30 or -0.25%. August Brent crude oil is at $121.99, down $1.08 or -0.88%. On Thursday, the United States Oil Fund ETF (USO) settled at $91.08, down $0.91 or -0.99%.
Oil prices are also garnering support from the threat of potential disruption in supplies in Europe and Africa. Also on the international front, the prospect of reaching a nuclear deal with Iran and the lifting of U.S. sanctions on the Iranian energy sector also seemed to be receding, providing further support to the oil rally.
Oil Soars to 13-Week High on Rising U.S. Gasoline Demand
WTI crude oil prices jumped to their highest level since March 7 on Wednesday as U.S. demand for gasoline continued to rise despite record pump prices.
U.S. gasoline stocks fell by a surprise 800,000 barrels as demand for the fuel rose despite sky-high pump prices. Analysts polled by Reuters had expected gasoline stocks to rise 1.1 million barrels.
Fresh COVID Lockdowns in China Threaten Demand
Shanghai and Beijing went back to COVID alert on Thursday. Parts of Shanghai imposed new lockdown restrictions and the city announced a round of mass testing for millions of residents, Reuters reported.
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Oil prices found support from fears of a potential disruption in supply in Europe. According to the Norwegian Oil and Gas Association (NOG), Norway’s oil output could be reduced if workers go on strike Sunday.
In another bullish development, Iran on Thursday dealt a near-fatal blow to chances of reviving the nuclear deal as it began removing essentially all the International Atomic Energy Agency monitoring equipment installed under the deal, IAEA chief Rafael Grossi said.
The fundamentals remain overwhelming bullish except for the announcement of new COVID restrictions in China. Essentially, the lockdowns are taking place in a small area of China so the effect on crude prices has been minimal.
Worsening conditions could mean more broad-based restrictions in larger areas of China. That could threaten to weaken demand which, would have a negative impact on prices.
Traders should consider China demand the wild card.