Oil Price Fundamental Daily Forecast – Supported by Stimulus Hope, Increasing Demand Expectations

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday, boosted by a weaker U.S. Dollar and expectations of a U.S. stimulus package designed to help jumpstart the world’s biggest economy and oil consumer. A rebound in Asian demand and a stronger stock market are also contributing to the current strength.

At 13:14 GMT, September WTI crude oil futures are trading $42.66, up $0.72 or +1.72% and December Brent crude oil is at $46.50, up $0.77 or +1.68%.

Stimulus Measures Key Market Driver

“Crude oil gained amid signs of further stimulus measures,” ANZ said in a note.

“U.S. lawmakers continued negotiations on the massive virus relief economic package with Treasury Secretary Steven Mnuchin saying there are areas where compromise is possible and a fair deal could be agreed upon.”

The markets were also supported after U.S. President Donald Trump tweeted that top congressional Democrats wanted to meet with him on coronavirus-related economic relief.

Fresh fiscal stimulus is expected to help boost consumer spending, which in theory should lead to more driving and hence, more gasoline usage. Both gasoline and distillate fuel inventories have been climbing, helping to keep a lid on crude oil prices. The current price action suggests traders are betting on these numbers to decline despite the approaching end to the traditional U.S. summer driving season.

Jet Fuel Demand Still Major Concern

Although the anticipated stimulus package is expected to boost consumer demand for gasoline, the big worry is that airline travel will continue to lag the rest of the economy. According to a report, U.S. passenger airline traffic, which was hit hard by the coronavirus pandemic, was down 80% in June from a year earlier, official figures showed, but still nearly twice the levels of May.

Saudi’s See Oil Demand Rebounding

Saudi Aramco sees a recovery in global oil demand, a view that would justify the paltry reduction in the price the world’s biggest crude exporter will charge refiners in Asia for cargoes loading in September.

Aramco Chief Executive Amin Nasser told reporters on August 9 that demand was recovering as countries try to restart economies after lockdowns aimed at curbing the spread of the novel coronavirus pandemic.

“Look at China, their gasoline and diesel demand is almost at pre-COVID 19 levels. We are seeing that Asia is picking up and other markets (too),” he said, after announcing the state-controlled oil giant’s quarterly results.

Department of Energy News

Reuters is reporting that energy companies have begun taking back millions of barrels of oil from the U.S. government’s emergency stockpile after renting storage in the facility to help manage a glut of crude this spring after energy demand collapsed during COVID-19 lockdowns, a Department of Energy website showed on Monday.

Daily Outlook

The tone is bullish early in the session with buying driven by stimulus hopes and signs of increasing demand. The WTI futures contract is also holding above a long-term support level at $41.72, which is the major support.

Later today at 20:30 GMT, traders will turn their attention toward the American Petroleum Institute (API) weekly inventory report. It is expected to show a drawdown of 3.4 million barrels. This should be supportive because it would be indicative of increased demand.

What could drive prices sharply higher would be a draw in gasoline and distillate supply. This is what bullish traders would like to see.

For a look at all of today’s economic events, check out our economic calendar.