Oil Price Fundamental Daily Forecast – Showing Sensitivity to Volatile U.S. Dollar

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed shortly before the regular session opening after clawing back earlier losses. Prices seem to be tracking the movement in the U.S. Dollar, which tends to influence demand for dollar-denominated crude oil. The price action is being manipulated by escalating tensions between the United States and China against a backdrop of rising coronavirus cases, which could be dragging down fuel demand.

At 11:45 GMT, September WTI crude oil is trading $41.15, up $0.08 or -0.19%. This is up from an earlier low of $40.72. September Brent crude oil is at $43.30, down $0.01 or -0.02%.

Despite the weakness, both futures contracts are holding onto their weekly gains.

Escalating US-China Tensions Raising Concerns Over Economic Recovery

Helping to weigh on prices earlier in the session was the announcement that China ordered the United States to close its consulate in the city of Chengdu on Friday, responding to a U.S. demand this week that China close its Houston consulate, as relations between the world’s two largest economies deteriorate.

Some traders fear that this current diplomatic spat will bring the two economic powerhouses closer to cancelling Phase One of their trade deal signed in January. This could slow down the economic recovery in both countries, pressuring demand for crude oil and fuels.

Dollar Slides to 22-Month Low Against Basket of Major Currencies

On Friday, the U.S. Dollar hit a 22-month low against a group of major currencies. A weaker dollar usually spurs buying of dollar-denominated commodities like crude oil, because they become cheaper for holders of other currencies.

This helped underpin crude oil prices throughout the week, but today, a slight recovery in the greenback is helping to cap crude prices. The overnight turmoil is driving helping to increase the dollar’s appeal as a safe-haven asset.

Daily Forecast

Crude oil is likely to be largely influenced by the movement in the U.S. Dollar throughout the session on Friday. A recovery in the dollar could encourage investors to lighten up on the long side. Another plunge in the greenback should limit crude oil losses, but could trigger a rally if higher-risk assets mount a turnaround.

Oil prices are vulnerable to a near-term correction if a recovery in fuel demand slows further, especially in the United States. Of particular concern is demand for gasoline and jet fuel.

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