Oil Price Fundamental Daily Forecast – Jump in US Post-Holiday Virus Cases Could Further Squeeze Fuel Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower early Tuesday, continuing the weakness that began last week. While weak demand remains the major worry, this anxiety is being elevated amid concerns that a possible rise in COVID-19 cases following the U.S. Labor Day long weekend, which also marks the end of the peak U.S. driving season, could further squeeze demand for fuel.

At 06:27 GMT, October WTI crude oil is trading $38.87, down $0.20 or -0.51% and December Brent crude oil is at $42.34, down $0.24 or -0.56%.

Coronavirus cases rose in 22 of the 50 U.S. states, Reuters analysis showed, on the holiday weekend traditionally filled with gatherings to mark the end of summer. At the same time cases are flaring up in India and Britain.

Saudi Arabia Cuts Prices, China Slows Imports

To recap the key event from over the long week-end, oil prices fell on Monday after Saudi Arabia made its deepest monthly price cuts to supply for Asia in five months and as uncertainty over Chinese demand clouds the market’s recovery.

The world’s top oil exporter, Saudi Arabia, cut the October official selling price for Arab Light crude it sells to Asia by the most since May.

China, the world’s biggest oil importer which has been supporting prices with record purchases, slowed its intake in August and increased its products exports, customs data showed on Monday.

Increased Drilling, Upcoming Maintenance Season

Also weighing on the market is an increase in U.S. drilling and the upcoming maintenance season for U.S. refineries.

U.S. energy firms last week added oil and natural gas rigs for the second time in the past three weeks, a weekly report by Baker Hughes Co. showed on Friday. Meanwhile, the upcoming maintenance season could cut crude demand by 1.5 million to 2 million barrels per day.

Short-Term Outlook

The major concern at this time is whether the demand recovery is strong enough to underpin prices and support a further rally. The price action on the charts suggests it isn’t.

Having held the same support area for weeks, prices are now trading below this level, turning it into resistance. Prices are likely to continue to fall until they hit a value area attractive enough to draw in new buyers.

The end of the U.S. driving season with gasoline at elevated levels, refinery maintenance shutdowns, lower Chinese imports – these are some of the factors contributing to the gloomy outlook. The uncertainty over the spread of the pandemic is another factor.

Clearly, there are some doubts about the recovery. Otherwise, I don’t think the Saudi’s would’ve cut prices.