Oil Price Fundamental Daily Forecast – Supported by IEA 2023 Outlook, but Strong Dollar Could Cap Gains

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Wednesday after recovering from earlier weakness. The price action suggests investors are still digesting yesterday’s scorching U.S. consumer inflation report and the prospect of a full-percentage point rate hike ahead of today’s government inventories report.

Trading action aside, however, today’s early volatility is more than likely being fueled by signs of bullish demand in an International Energy Agency (IEA) report.

In other news, traders are surprisingly ignoring a private industry inventories report that showed a larger-than-expected build.

At 10:22 GMT, October WTI crude oil futures are trading $87.74, up $0.43 or +0.49% and December Brent crude oil is at $92.74, up $0.52 or +0.56%. On Tuesday, the United States Oil Fund ETF (USO) settled at $72.01, down $0.36 or -0.50%.

IEA Sees Demand Slowing in Q4, but Picking up in 2023

Growth in global oil demand is set to grind to a halt in the fourth quarter of this year as an economic slowdown deepens, the International Energy Agency (IEA) said on Wednesday, but said it would resume strongly in 2023.

I know what you’re thinking. This reads like bearish news so why did prices turn higher following its release? Prices probably didn’t fall on this outlook because the bearish news has been priced in for months or essentially since the U.S. Federal Reserve began raising rates aggressively to combat soaring inflation.

The Fed along with the other major central banks are trying to stop the rise in inflation and in attempting to do this, they are slowing the economy. Some traders are also saying that lower demand has been priced in because of growing signs of a global recession and China’s COVID lockdowns.

While the IEA acknowledges these factors, it also sees robust economic growth next year as well as the lifting of China’s COVID restrictions. Furthermore, it predicts air travel will boost jet fuel demand.

Looking Ahead…

The U.S. Energy Information Administration (EIA) will release its inventories data at 14:30 GMT. It is expected to show that crude oil inventory rose 1.9 million barrels during the week-ending September 9.

This report follows data from the American Petroleum Institute (API) that shows an unexpected build the week-ending September 9 of 6.035 million barrels, while analysts predicted a draw of 200,000 barrels.

The API also reported a draw in gasoline inventories this week of 3.23 million barrels for the week ending September 9. Additionally, distillate stocks saw a build of 1.75 million barrels for the week, on top of last week’s 1.833-million-barrel increase.

Despite the early strength, crude oil traders should be leery of the U.S. Dollar. A stronger U.S. Dollar tends to weigh on demand for dollar-denominated crude oil. With the greenback testing a 24-year high, buyers may be reluctant to chase crude oil prices so gains could be capped.