Oil Price Fundamental Daily Forecast – Strong Dollar, Gulf Facilities Recovery Encouraging Profit-Taking
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching lower on Thursday, but inside yesterday’s trading range, suggesting investor indecision and impending volatility.
The markets are being pressured by a stronger U.S. Dollar, which is making the dollar-denominated asset more expensive for foreign buyers, and easing of concerns over potential storm damage from Hurricane Nicholas and profit-taking after steep four day rally. Traders are shrugging off IEA and OPEC forecasts calling for a jump in future demand after pricing in this news earlier in the week.
US Dollar Edges Higher with Focus on Fed for Taper Clues
The dollar climbed to the higher end of recent ranges against other major currencies on Thursday, as traders looked to next week’s Federal Reserve policy meeting for indications on how soon the U.S. central bank will start to taper stimulus, Reuters reported.
The Federal Open Market Committee’s (FOMC) two-day policy meeting ending September 22 should provide some clarity on the outlook for both tapering and eventual rate hikes.
Tapering typically lifts the dollar as it suggests the Fed is one step closer to tighter monetary policy. The stronger dollar could weigh on foreign demand for U.S. crude. Tapering also means the central bank will be buying fewer debt assets, in effect reducing the amount of dollars in circulation, which in turn lifts the currency’s value.
Threat to US Gulf Production from Hurricane Nicholas Eases
U.S. Gulf energy companies have been able to restore pipeline service and electricity quickly after Hurricane Nicholas passed through Texas, allowing them to focus on efforts to repair the damage caused weeks earlier by Hurricane Ida, Reuters reported.
“As Nicholas spared U.S. production from further disruptions, it is difficult to see how oil prices can increase further in the near term,” said Rystad Energy analyst Nishant Bhushan.
“Ida-affected oil production capacity continues to recover in the U.S.”
Despite the weakness, in our opinion, the move is likely to only lead to a correction rather than a change in the trend. This is because the bullish fundamentals still outweigh the bearish fundamentals.
The bullish news includes low U.S. inventories. Oil prices jumped on Wednesday, supported by figures showing U.S. crude inventories fell by a bigger than expected 6.4 million barrels last week, with offshore oil facilities still recovering from the impact of Hurricane Ida.
Other bullish factors are signs of oil demand recovery. In closely watched reports this week, the International Energy Agency (IEA), the Organization of the Petroleum Exporting Countries (OPEC) and the U.S. government’s Energy Administration (EIA) all updated their world demand and supply estimates in their monthly reports.
According to the numbers, world oil demand will rise back above 100 million barrels per day, a level last reached in 2019, as soon as the second quarter of next year. This news offset worries that the pandemic may curb oil use for longer or for good.