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Oil Price Fundamental Daily Forecast – Fresh Supply, Demand Worries Weigh on Prices

By:
James Hyerczyk
Published: Jul 19, 2020, 06:56 UTC

OPEC and its allies agreed to trim record supply cuts of 9.7 million barrels per day (bpd) by 2 million bpd in August.

Oil Price Fundamental Daily Forecast – Fresh Supply, Demand Worries Weigh on Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures settled lower on Friday on worries that the surge in COVID-19 would zap fuel demand. Gains were also capped by concerns that the OPEC+ decision to trim production cuts would lead to higher supply. Meanwhile, U.S. energy firms continue to slash the number of producing oil and natural gas rigs.

On Friday, September WTI crude oil settled at $40.75, down $0.18 or -0.44% and September Brent crude oil finished the session at $43.14, down $0.23 or -0.53%.

COVID-19 Infections Rising in US and Globally

On Thursday, the United States reported at least 75,000 new COVID-19 cases, a daily record. Spain and Australia reported their steepest daily jumps in more than two months, while cases continued to soar in India and Brazil.

While the government is not expected to shut down the economy for a second time, the rise in cases could encourage people to stay at home. This would cut down on demand for gasoline, which would likely lead to a jump in crude oil supply.

Reuters said that fuel demand has broadly recovered from a 30% drop in April after nations worldwide restricted movements and businesses shuttered. Consumption remains below pre-pandemic levels, however, and fuel purchases are falling again as infections rise.

Another voluntary or involuntary shutdown would keep the pressure on consumption, but pushing up supply.

Traders Still Digesting OPEC+ Decision to Trim Production Cuts

Although the initial reaction to the OPEC+ decision to taper production cuts encouraged traders to trim their long positions, some traders came in on the intraday dip as they continued to digest the details of the decision.

OPEC and its allies agreed to trim record supply cuts of 9.7 million barrels per day (bpd) by 2 million bpd in August. This helped trigger a very successful recovery rally. On paper, the news is potentially bearish, but not bearish enough to trigger a retest of the May lows.

If prices collapse, it won’t be solely because of the tapering, but because of a combination of smaller supply cuts and falling demand. Over time, the market will be able to adjust the tapering, but it will have a hard time adjusting to the drop in demand because it’s still an unknown. If there is a near-term sell-off, it will be because of the uncertainty over demand.

Baker Hughes:  US Oil & Gas Rig Count Falls to Record Low for 11th Week

U.S. energy firms cut the number of oil and natural gas rigs operating to a record low for an 11th week in a row though they have slowed the reductions as some consider returning to the well pad with crude oil prices up from historic lows.

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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