Oil Price Fundamental Daily Forecast – Short-Covering Supported by Renewed Middle East Tensions

U.S. West Texas Intermediate and Brent crude oil prices are trading higher on Thursday, helped by rising tensions in the Middle East, output cuts by producing nations to tackle oversupply and the promise of more government stimulus to ease the economic pain of the new coronavirus pandemic.

Despite today’s strength, concerns about the collapse in demand because of travel restrictions to contain the coronavirus and a shortage of space to store oil still dominate.

However, experts say they do not expect a repeat of Monday’s price shock, which drove the expiring May futures contract into negative territory for the first time in history as traders paid buyers to take crude off their hands given a lack of storage space for the current supply glut.

At 11:47 GMT, June WTI crude oil is trading $15.57, up $1.79 or +12.99%, and June Brent crude oil is at $21.95, up $1.58 or +7.76%.

Rising Tensions in Middle East Threaten Supply

Prices rose on Thursday in reaction to an announcement from President Donald Trump in which he instructed the U.S. Navy to fire on any Iranian ships that harass it in the Gulf, although he added later he was not changing the military’s rules of engagement.

“This ratchets up tensions once again between the U.S. and Iran. However, given the glut we have in the oil market, it is difficult to see this offering lasting support to the market, unless the situation does escalate further,” ING’s head of commodities strategy Warren Patterson said.

First Signs of Production Cuts

Output cuts by producers also supported prices. Kuwait began reducing oil supply to the international market without waiting for the deal agreed by major oil exporting countries to take effect on May 1.

“It is questionable that bringing forward the planned output restraint by a week would make a material difference, especially as no demand consolidation is anticipated in the current quarter,” PVM Oil Associates analyst Tamas Varga said.

More US Fiscal Stimulus

The U.S. House of Representatives expects to pass a nearly $500 billion coronavirus relief bill on Thursday to provide funds to small businesses and hospitals struggling with the economic toll of the pandemic.

Daily Forecast

Although the unrest in the Middle East is at the forefront today, investors will also get the opportunity to react to reports in the U.S. showing weekly jobless claims and factory activity. Both reports will give oil traders clues as to how dire the current demand situation is.