Oil Price Fundamental Daily Forecast – Middle East Supply Concerns Offsetting Fear of Demand Destruction

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading steady-to-better on Thursday as worries over demand destruction due to the global outbreak of COVID-19 cases are being somewhat offset by rising Middle East tensions.

The price action suggests buyers are continuing to come in on the dips as they try to establish new higher support in anticipation of a renewed economic recovery, but unlike in July, attempts to rally are being thwarted by fresh selling pressure.

While the buyer/seller stalemate a couple of weeks ago was eventually won by the bulls, this sell-off appears to be in the strong hands of the bears.

At 14:43 GMT, September WTI crude oil futures are trading $68.40, up $0.25 or +0.37% and October Brent crude oil futures are at $70.72, up $0.34 or +0.48%.

COVID-Related Bearish News

Helping to cap gains are concerns over the recovery of global oil demand due to the surge in coronavirus cases.

Reuters is reporting that Japan is poised to expand emergency restrictions to more prefectures while China, the world’s second-largest oil consumer, has imposed curbs in some cities and cancelled flights, threatening fuel demand.

In the United States, the world’s biggest oil consumer, COVID-19 cases hit a six-month high with more than 100,000 infections reported on Wednesday, according to a Reuters tally.

Middle East Tensions Bullish News

Israeli jets struck what its military said were rock launch sites in Lebanon early Thursday in response to two rockets fired towards Israel from Lebanese territory, in an escalation of cross-border hostilities amid heightened tensions with Iran, according to Reuters.

The exchange came after an attack on a tanker off the coast of Oman last Thursday, which Israel blamed on Iran. Two crew members, a Briton and a Romanian, were killed. Iran denied any involvement.

Daily Forecast

Traders should expect heightened volatility over the near-term because of the off-setting stories guiding the price action this week. It basically comes down to the known and the unknown and right now, the fear of the unknown is in control.

The known are the inventories reports. Crude oil is expected to maintain its longer-term bullish tone as long as the reports show tightening supply especially gasoline and distillates.

The unknowns are the demand destruction due to the Delta variant spread and potential supply disruptions due to Middle East tensions.