Oil Price Fundamental Daily Forecast – Slides to Seven-Month Low as Chinese Trade Data Loses Momentum

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are down sharply shortly after the mid-session on Wednesday as disappointing Chinese trade data fueled investor concerns about recession risks. Traders are also expressing disappointment to a few mixed comments from the government and a pair of oil executives.

At 17:44 GMT, October WTI crude oil is trading $82.50, down $4.38 or -5.04% and December Brent crude oil is at $87.71, down $4.26 or -4.63%. The United States Oil Fund ETF (USO) is trading $68.08, down $3.34 or -4.68%.

China’s Trade Loses Steam as Demand Wanes at Home and Abroad

Crude oil prices got off to a shaky start early Wednesday after a report showed China’s exports and imports lost momentum in August with growth significantly missing forecasts as surging inflation crippled overseas demand and fresh COVID curbs and heatwaves disrupted output, reviving downside risks for the shaky economy.

The disappointing August trade figures rattled the crude oil market, which had already been buckling under a surging U.S. Dollar and the prospect of higher global interest rates.

Global Central Bank Tightening to Continue, but Dollar Remains King

Several world central banks are slated to keep hiking rates to fight inflation, but the United States appears better placed to weather the storms, economists have said. That has boosted the dollar to a 24-year peak against the Yen and a 37-year high versus the Sterling.

The rising U.S. Dollar is not necessarily a good thing for crude prices. The stronger greenback pressures oil prices, since the commodity is a dollar-denominated asset.

Sellers Shrug-Off Bullish Signals

On the bullish side, U.S. crude production and petroleum demand will both rise in 2022 as the economy grows, the U.S. Energy Information Administration (EIA) said in its Short-Term Energy Outlook (STEO) on Wednesday. Prices also drew some support from Russian President Vladimir Putin to halt the country’s oil and gas exports if price caps are imposed.

Additionally, top oilfield services company Schlumberger on Wednesday said North American oil and gas activity was growing at a faster pace than expected, as customers have largely shrugged off concerns about a looming recession.

But not everyone is on the side of the EIA and the Schlumberger executive, “U.S. oil output this year is likely to disappoint, with even lower growth possible next year,” said Scott Sheffield, chief executive of leading shale producer Pioneer Natural Resources.

Sheffield forecast U.S. oil production will rise around 500,000 barrels per day (bpd) this year, and next year’s gains could fall below that level. His estimate is well below the 800,000 bpd projection for 2023 by the U.S. Energy Information Administration (EIA).

“There could be more downside,” he said on Wednesday at Barclays CEO Energy-Power Conference in New York, pointing to supply chain issues, inflation and infrastructure constraints.

Short-Term Outlook

Trader reaction to the long-term Fibonacci level at $81.85 is likely to determine the direction of the October WTI crude oil market the rest of the week. The key level to watch for December Brent crude oil is $85.25.