Oil Price Fundamental Daily Forecast – Rebound Could Be Limted by Worries Over Weak Demand, Oversupply

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Monday after recovering from early session weakness. Despite the rebound, gains are being capped by demand concerns over rising COVID-19 infections in Europe and Japan’s expected release of crude from its Strategic Petroleum Reserve (SPR). So basically, the upside could be limited by worries over both weak demand and oversupply.

At 10:13 GMT, January WTI crude oil is trading $76.13, up $0.19 or +0.25% and January Brent crude oil is at $79.11, up $0.22 or +0.28%.

In other news, professional money managers continued to trim their long positions. Baker Hughes reported another weekly rise in U.S. oil-drilling rigs and Goldman Sachs analysts called the current sell-off “excessive”.

Bearish Factor:  Renewed Lockdowns in Europe

At this time, the bearish factors are outweighing any bullish news and one key factor effects the demand side. Weighing on demand and consequently on prices were possible lockdowns in Europe as COVID-19 cases surged again. Germany warned on Friday it may need to move to a full lockdown after Austria said it would reimpose strict measures to tackle rising infections.

Bearish Factor:  Global Strategic Petroleum Reserve Releases

Reuters is reporting that the White House on Friday continued to press the OPEC producer group again to maintain adequate global supply, days after the U.S. discussions with some of the world’s biggest economies over potentially releasing oil from strategic reserves to quell high energy prices.

Additionally, Japanese Prime Minister Fumio Kishida signaled on Saturday he was ready to help combat soaring oil prices following a request from the United States to release oil from its emergency stockpile, in an unprecedented move, Reuters reported.

Tokyo is exploring ways to bypass a law which permits the release of oil reserves only in cases of supply shortage or natural disasters.

Bearish Factor:  Rising U.S. Oil-Drilling Rigs

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil rose by seven to 461 this week. That followed increases in each of the previous three weeks, including a climb of four oil rigs last week, Baker Hughes data showed.

The total active U.S. rig count, which includes those drilling for natural gas, also climbed by seven to stand at 563, according to Baker Hughes.

Daily Forecast

Today’s early price action suggests investors are actively pricing in SPR releases while searching for a value area to re-enter on the long side. Furthermore, the liquidation by hedge funds will eventually set up a buying opportunity but it will take time to form a new support base.

Meanwhile, analysts at Goldman Sachs said the recent declines in oil prices were “excessive” given that the oil market remains in a deficit, adding that it reiterates its $85-per-barrel Brent forecast for the fourth quarter. January Brent crude oil is currently trading about $79.00.

“The magnitude of deficit is in fact on its own sufficient to absorb the current perceived headwinds to the oil bull thesis, with lower prices in fact reducing the odds of a strategic release,” the bank said in a note dated Friday.