Oil Price Fundamental Daily Forecast – Strains on Global Economy Likely to Weigh on Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Wednesday following the release of a higher-than-expected U.S. consumer inflation report. Traders are starting to price in the possibility that demand growth will suffer due to strains on the economy caused by inflation and supply chain issues. Nonetheless, surging prices for power generation could still underpin the market.

It sounds like we’re about to enter a rangebound situation where demand destruction weighs on prices while excessively high gas prices continue to provide support by driving power generators to use more crude oil.

At 13:47 GMT, December WTI crude oil is trading $78.98, down $0.82 or -1.03% and December Brent crude oil is at $82.52, down $0.90 or -1.08%.

In other news, due to Monday’s U.S. bank holiday, the government’s weekly crude oil inventories report has been pushed into Thursday. Later today at 20:30 GMT, however, the American Petroleum Institute will release its latest weekly inventories figures.

Consumer Inflation Rises More than Expected

Consumer prices increased slightly more than expected in September as food and energy price increases offset declines in used cars, the Labor Department reported Wednesday.

The consumer price index for all items rose 0.4% for the month, compared to the 0.3% Dow Jones estimate. On a year-over-year basis, prices increased 5.4% vs the estimate for 5.3% and the highest since January 1991. However, excluding volatile food and energy prices, the CPI increased 0.2% on the month and 4% year over year, against respective estimates for 0.3% and 4%.

Gasoline prices rose another 1.2% for the month, bringing the annual increase to 42.1%. Fuel oil shot up 3.9%, for a 42.6% year over year surge.

China Crude Imports Down 15% on Year, Gas Imports at 9-Month High

China, the world’s top crude oil buyer, brought in 41.05 million tonnes of crude oil last month, or about 9.99 million barrels per day (bpd). That compares with 10.49 million bpd in August and 11.8 million bpd a year earlier.

Imports for the first 9 months of 2021 were down 6.8% from the same period last year at 387.4 million tonnes, dragged lower by a slowdown in purchases since April due to tightened quotas for both crude oil and refined fuel.

Short-Term Outlook

There’s an old adage in the futures market that goes, “Nothing cures high prices, like high prices.” It appears we may be seeing a little of that in the crude oil futures markets at this time. The rise in crude oil prices to seven-year highs has proved to be too much for some economies to handle, forcing them to move to alternative sources of energy and driving down demand.

Falling Chinese demand is one of the factors weighing on prices after the country took steps to curb energy prices in order to sustain the economic recovery. Earlier in the year, China attempted to cool the rise in crude oil prices by drawing on commercial and strategic reserves as well as curbing demand in the industrial sector.

It appears that prices have moved too high, too fast for the global economy to handle so expectations are that prices will have to come down over the near-term until the situation stabilizes.

OPEC+ could try to alleviate some of the situation by increasing supply, but their biggest fear is that prices will fall too quickly. So instead of upping production, they’ve chosen to let the market find the right price for crude oil. Unfortunately for crude oil bulls, it looks like that “right price” is going to come in lower than current levels.