Oil Price Fundamental Daily Forecast – Lack of Clarity on Supply/Demand Issues Producing Two-Sided Trade

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower at the mid-session but well off their lows following an early session plunge. Sellers dominated the trade throughout the session as the spread of the COVID-19 Delta variant stoked fears about fuel demand, but losses were limited by forecasts that crude supply will be tight the rest of the year.

At 17:33 GMT, September WTI crude oil is trading $71.93, down $0.14 or -0.19% and September Brent crude oil is at $74.15, up $0.05 or +0.07%.

Today’s worries about coronavirus came as a surprise because last week, traders shrugged off the news most of the week after a 7% slump on Monday. Furthermore, the market’s posted their first weekly gains in two to three weeks, boosted by strong U.S. demand and expectations of tight supplies.

Supply Side Support

Inventories at Cushing, Oklahoma, delivery point for U.S. crude futures, declined by about 2.6 million barrels last week, traders said, citing data from Wood Mackenzie.

Additionally, global oil markets are expected to remain in deficit despite a decision by OPEC and its allies to raise production through the rest of the year.

Demand Side Resistance

According to Reuters, coronavirus cases kept rising over the weekend, with some countries reporting record daily increases and extending lockdown measures. China, the world’s largest crude importer, has also registered a rise in COVID-19 cases.

Meanwhile, analysts at Reuters warned that China’s crackdown could knock crude oil import growth to a 20-year low.

According to the report, Beijing’s crackdown on the misuse of import quotas combined with the impact of high crude prices could see China’s growth in oil imports sink to the lowest in two decades in 2021, despite an expected rise in refining rates in the second half.

Daily Forecast

Monday’s price action suggests there is a battle brewing within the energy complex between those supply-driven traders who believe the prevailing supply deficit engineered by OPEC+ will continue to underpin prices, and those who believe the threat of the COVID-19 Delta variant in regions with low vaccination rates will lead to demand destruction and a slowdown in the global economic recovery.

Given the current stalemate between the two sides, we’re likely to see a sideways trade until investors get more clarity about the supply situation from Wednesday’s U.S. Energy Information Administration (EIA) weekly inventories report. Or the COVID-19 threat either escalates or goes into hibernation.