Oil Price Fundamental Daily Forecast – Supported by Improving Risk Sentiment as Recession Fears Subside

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Thursday, following-through to the upside following yesterday’s recovery rally. The market is being supported domestically by improved risk appetite, lower crude inventories and a rebound in gasoline demand. Nonetheless, buyers appear to be a little tentative due to lingering concerns over a global recession.

At 09:17 GMT, September WTI crude oil futures are trading $99.35, up $2.09 or +2.15% and Brent crude oil is at $108.45, up $1.83 or +1.72%. On Wednesday, the United States Oil Fund ETF (USO) settled at $77.88, up $2.72 or +3.62%.

Risk Sentiment Underpins Prices

Crude oil is getting a small jolt today from improving risk sentiment as recession fears retreat following ongoing U.S. earnings optimism and less-hawkish Fed chatter on future rate hikes.

The U.S. Federal Reserve on Wednesday raised its benchmark overnight interest rate by 75-basis points, in line with expectations, to combat red-hot inflation, while Fed Chair Powell added the central bank will be making rate hike decisions on a meeting-by-meeting basis.

In addition, the Fed also said the U.S. economy is not in recession as “there are just too many areas of the economy that are performing too well.”

Powell’s comments, suggesting a slower hiking path, weighed on the U.S. Dollar, boosting demand for dollar-denominated crude oil.

Drop in Stockpiles, Exports Surge Provides Added Boost

Traders are still reacting positively to yesterday’s bullish government inventories report that revealed U.S. crude exports surged to an all-time high last week. The move contributed to another drop in stockpiles and was primarily driven by overseas demand due to the big discount for U.S. crude when compared with international-favorite Brent.

Crude inventories dropped 4.5 million barrels to 422.1 million barrels in the week ended July22, the U.S. Energy Information Administration said on Wednesday, compared with expectations for a 1 million-barrel drop. The decline was in large part the result of a surge in crude exports to a record 4.5 million barrels per day in the latest week.

U.S. crude production also rebounded to 12.1 million bpd after two weeks of declines, rising 200,000 bpd in its biggest increase since December.

U.S. gasoline stocks also fell by 3.3 million barrels on the week, and distillate stockpiles, which include diesel and heating oil, fell by 784,000 barrels.

Short-Term Outlook

The market could continue to garner support amid speculation that exports could continue to rise, thanks to a wide spread between the U.S. and international crude benchmarks, particularly as Europe has reduced imports from its top supplier, Russia, in the wake of Moscow’s invasion of Ukraine and subsequent sanctions on that nation. Some analysts also think we could see 5 million-plus per day. In other words, we may have not seen peak oil globally.

Currently, the arbitrage, or spread between Brent and U.S. West Texas Intermediate crude oil futures has widened out to more than $9 a barrel.

“International refiners will go to the United States to load up on U.S. crude oil, as long as the arb is so wide that it covers the cost of carry,” said Robert Yawger, executive director of energy futures at Mizuho.