Oil Price Fundamental Daily Forecast – Next Major Move Hinges Upon Gasoline Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are being pressured on Monday on worries that rising coronavirus cases around the world could lead to lower fuel demand. Traders also lightened up on the long side but remained cautiously optimistic about ongoing talks over a European Union-wide recovery fund to revive economies affected by the pandemic.

At 10:30 GMT, September crude oil futures are trading $40.38, down $0.37 or -0.91% and September Brent crude oil futures are at $42.75, down $0.39 or -0.90%.

The news from last week suggests the markets may move into sideways mode over the short-run. Keeping a lid on prices will be the OPEC+ decision to taper production cuts starting in August. This could weigh on prices until increased demand fills the gap. However, prices could fall even further if U.S. companies decide to ramp up production.

Losses could be limited if U.S. supply continues to tighten, but this will only occur if there is strong gasoline demand. This could become a problem if states place more restrictions due to the surge in COVID-19 infections.

Consumers may decide to stay at home, air travel demand could continue to plunge. Factories and schools could remain closed or opened at less-than-full capacity. All of these factors could weigh on demand for crude oil, gasoline and distillates.

“As things stand, prices are not likely to produce any sizeable gains very soon, until a signal that the pandemic slows down. And even though in Europe the virus has been cornered, the Americas and some Asian states have still a long way to do,” said Rystad Energy’s head of oil markets Bjornar Tonhaugen.

Other News

In other news, Japan’s oil imports fell 14.7% in June from the same month a year earlier, official figures showed on Monday. The drop was not as pronounced as in May when they fell 25%, year on year.

China’s refineries imported and processed record amounts of crude oil in June, and while these are undoubtedly bullish economic signals, it’s worth noting that flows into storage tanks were also likely at an all-time high.

The massive amount of crude being stored in China may end up weighing on oil imports from August onwards, even with the nation’s recovery in domestic consumption.

Given the absence of official data on storage flows, it cannot be confirmed that this is a record, but based on calculations it’s likely that more crude oil went into storage in June than in any other month.

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