Oil Price Fundamental Daily Forecast – Strong Stock Market Could Drag Oil Higher into Close

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Wednesday amid concerns over a potential economic recession. Oil prices are also moving in tandem with the U.S. equity markets, which are trading lower shortly after the cash market opening.

AT 14:16 GMT, August WTI crude oil futures are trading $103.19, down $6.33 or -5.78%. August Brent crude oil is at $108.73, down $5.92 or 5.16% and the United States Oil Fund ETF (USO) is at $79.52, down $4.53 or -5.39%.

In other news, the Biden Administration is set to cut fuel costs for drivers. The White House also turned up the heat on oil companies to ramp up production.

Recession Fears Fueling Expectations of Lower Demand

Crude oil traders will be eyeing testimony from U.S. Federal Reserve Chair Jerome Powell throughout the session on Wednesday as they look for clues about future interest rate hikes. Traders are also hoping Powell gives them some clarity on whether the economy is heading toward recession.

Helping to support the notion of higher interest rate hikes is a Reuters poll of economists that predicted the Federal Reserve will deliver another 75-basis-point interest rate hike in July, followed by a half-percentage-point rise in September, and it won’t likely scale back to quarter-percentage-point moves until November at the earliest.

Give the expected aggressiveness of the rate hikes, traders are also starting to factor in the start of a recession that should pressure demand.

On Monday, Goldman Sachs said it sees a 30% chance of the U.S. economy tipping into recession over the next year, up from its previous forecast of 15%.

Early Pressure Blamed on Weak Equity Markets

Crude oil prices are also tracking the movement in U.S. equity markets closely. Oil prices often move in tandem with stocks, which also took a hit as investors assessed how interest rate hikes designed to cool soaring inflation might stall an economic recovery as pandemic restrictions have eased.

With stocks moving higher shortly after the opening, crude oil could recover most of today’s earlier losses into the close.

Daily Forecast

The big news of the day is President Biden asking Congress to consider a three-month suspension of the 18.4 cents per gallon federal tax on gasoline and calling on states to suspend their fuel taxes.

Consumers are expecting som financial relief from the move, but it is not likely to lower inflation. In fact, it could even backfire because it has the potential to actually raise inflation.

Additionally, it could actually support higher gasoline prices by stimulating demand.