Oil Price Fundamental Daily Forecast – Prices Dropping as Market Searches for Value Zone

James Hyerczyk
Published: Jul 12, 2022, 13:12 GMT+00:00

Today’s lower crude oil prices are reflecting rising concerns over lower demand as multiple Chinese cities are adopting fresh COVID-19 curbs.

WTI and Brent Crude Oil

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U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Tuesday. Pressuring the dollar-denominated asset is the strong greenback. This helping to reduce foreign demand for U.S. oil. Worries over demand due to COVID-19 curbs in top importer China and fears of a global economic slowdown are additional catalysts driving the price action.

At 12:22 GMT, September WTI crude oil futures are trading $96.39, down $4.82 or -4.76% and September Brent crude oil is at $102.25, down $4.85 or -4.53%. On Monday, the United States Oil Fund ETF (USO) settled at $78.20, down $0.34 or -0.43%.

The analysts at Commerzbank sum up the current situation this way, “In the West, the combination of high energy prices and rising interest rates is fueling concerns about a recession that would have a serious impact on oil demand.”

Demand Concerns Rise as Multiple Chinese Cities Adopt Fresh COVID-19 Curbs

Today’s lower crude oil prices are reflecting rising concerns over lower demand as multiple Chinese cities are adopting fresh COVID-19 curbs. These curbs include business halts to lockdowns. In an effort to rein in new infections, the country has ordered the large commercial hub Shanghai to begin another mass testing effort after finding a highly-transmissible Omicron subvariant.

China has said curbs must be as targeted as possible to reduce damage to the world’s No. 2 economy, after this year’s major disruptions clogged global supply chains and hit international trade.

US Official Fears Price Surge if Russian Oil Prices Aren’t Capped

The global price of oil could surge by 40% to around $140 per barrel if a proposed price cap on Russian oil is not adopted, along with sanction exemptions that would allow shipments below that price, a senior U.S. Treasury said on Tuesday, and Reuters reported.

Treasury modeling showed that implementing the sanctions without the price exception could trigger significant increases in the price of crude oil, potentially sending it to around $140 per barrel from around $100 per barrel now, the Treasury official said.

IEA Chief Says Price Cap on Russian Oil Should Include Refined Products

The head of the International Energy Agency said on Tuesday the G7 proposal to impose a price cap on Russian oil should include refined products as well.

“My hope is that the proposal, which is important to minimize the effect on the economies around the world, gets buy-in from several countries,” IEA Executive Director Fatih Birol told Reuters in an interview on the sidelines of the Sydney Energy Forum.

“And if it is pursued, it is not only focused on crude oil, as refined products are also an important challenge for the economies and will be more of a challenge in the next months to come,” he said.

Short-Term Outlook

Crude oil is going to have a difficult time rallying until traders figure out the scope of China’s new COVID curbs. Furthermore, although the hedge funds aren’t shorting the market, they aren’t buying crude oil either so prices could continue to retreat until big money decides to start bidding. This means traders are waiting for the market to find a value area.

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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