Oil Price Fundamental Daily Forecast – Supported by Russian Oil Ban Expectations, Tight US Product Inventories

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading nearly flat on Friday, while continuing to hover near its more than two-month high. Helping to underpin prices is the prospect of a European Union (EU) ban on Russian energy products and expectations of tighter U.S. gasoline supplies.

At 07:58 GMT, July WTI crude oil futures are trading $114.25, up $0.16 or +0.14%. July Brent crude is at $117.71, up $0.31 or +0.26%. On Thursday, the United States Oil Fund ETF (USO) settled at $84.60, up $2.12 or +2.57%.

Both benchmarks are in a position to post 4-5% gains this week.

Two Factors Attracting the Most Attention

The focus for traders this week has been supply. And two events have garnered most of the attention:  The possible ban on Russian crude exports and the significant tightness in U.S. product inventories.

The EU may announce the ban on May 30 at nearly the same time the U.S. begins its high demand summer driving season. Both moves will tighten supply.

But there is a third factor developing. Bullish traders are hoping China starts to lift its COVID-related restrictions while at the same time announcing more measures to support the economy. This could give demand a much needed boost.

EU Waiting for Hungary’s Approval

Early next week, the European Commission will try to obtain unanimous support of all 27 EU member states for its proposed new sanctions against Russia. However, Hungary isn’t quite on the same page with the other 26 members.

According to Reuters, a top Hungarian aide said the country needed 3-1/2 to 4 years to shift away from Russian crude and make huge investments to adjust its economy. Hungary could not back the EU’s proposed oil embargo until there was a deal on all issues.

At this time, this is a significant stumbling block.

High Gasoline Prices Not Bothering US Motorists

Ahead of this weekend’s U.S. Memorial Day holiday and the start of the summer driving season, U.S. gasoline prices are hovering near record highs.

According to the American Automobile Association (AAA), miles traveled by motorists rose 5.6% in the first three months of the year even as the price of a gallon of regular gasoline has jumped 50% in the last year, to nearly $4.60 on average nationally.

Drivers don’t seem to be bothered by high prices, however, with this Memorial Day weekend travel expected to be the busiest in two years. More importantly, it will serve as a gauge as to how much consumers are willing to tolerate fuel price increases.

If U.S. motorists continue to show little concern for high prices then stockpiles will continue to dwindle and prices will continue to rise, probably reaching nearly $5.00 per gallon before long.

Finally, consumption of motor gasoline is set to hit 9.12 million barrels per day (bpd) this month, and reach a peak for this summer at 9.31 million bpd in July, according to EIA data.

Daily Forecast

Sentiment appears to be skewed toward the bullish side with the March 2022 highs within striking distance. At this time, it would probably take a complete collapse of the impending Russian energy ban or further lockdowns in China to derail this strong market.