Oil Price Fundamental Daily Forecast – Gloomy Fed Outlook Moves Demand Worries to Forefront

U.S. West Texas Intermediate and international-Brent crude oil futures are trading lower on Thursday, pressured by another record build-up in U.S. crude inventories and the U.S. Federal Reserve’s projections that the world’s biggest economy would shrink 6.5% this year.

After OPEC+ extended their production cuts over the weekend, the focus for investors shifted back to demand. There were worries over demand early in the week, but the Fed’s bleak outlook for the economy solidified these concerns.

At 10:00 GMT, July WTI crude oil is trading $38.38, down $1.22 or -3.08% and August Brent crude oil is at $40.60, down $1.13 or -2.71%.

US Energy Information Administration Weekly Inventory Report

U.S. crude inventories rose unexpectedly by 5.7 million barrels in the week to June 5 to 538.1 million barrels – a record – as imports were boosted by the arrival of supplies bought by refiners when Saudi Arabia flooded the market in March and April, Energy Information Administration (EIA) data showed.

The EIA report also showed gasoline stockpiles grew more than expected to 258.7 million barrels. Distillate stockpiles, which include diesel and heating oil, rose by 1.6 million barrels, although the increase was smaller than in previous weeks.

Federal Reserve Paints Bearish Picture

Concerns over future demand rose to the forefront late Wednesday after the U.S. Federal Reserve said U.S. unemployment was set to reach 9.3% at the end of 2020 and said it would take years to fall back, while interest rates were expected to stay near zero at least through next year.

Fear of Second Wave of Coronavirus Outbreaks

Crude oil traders are starting to monitor the coronavirus data as fear of a second wave slowing creeps into the financial markets.

Total U.S. coronavirus cases topped 2 million on Wednesday, with new infections rising slightly after five weeks of declines, according to a Reuters analysis.

A second wave of infections would be devastating to the economy and demand for crude oil, gasoline and distillates. The combination of the Fed forecasts and a second call for restrictions could trigger another plunge in crude oil prices.

Daily Forecast

WTI crude oil is consolidating inside a key technical resistance range and Brent crude oil is straddling the lower end of its resistance range. The price action suggests traders are waiting for a catalyst to trigger the next major move.

The OPEC+ plan to cut production is helping to underpin prices, while demand concerns may have helped put in a short-term top.

We expect the next catalyst to be bearish so we’re looking for further weakness over the near-term. But don’t look for an acceleration to the downside until the July WTI futures contract crosses to the weak side of the 50% level at $36.07.

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