Oil Price Fundamental Daily Forecast – Supported by Tight Supply Concerns as Demand Destruction Worries Fade

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures jumped more than 2 percent on Friday on continuing concerns over the tight global supply situation. Supporting price throughout the week were the recent huge decline in U.S. crude inventories and the perception that OPEC and its allies would not agree on the output boost requested by U.S. President Joe Biden earlier in the month when he visited Saudi Arabia.

On Friday, September WTI crude oil settled at $98.62, up $2.20 or +2.28% and December Brent crude oil finished the session at $99.40, up $1.66 or +1.70%. The United States Oil Fund ETF (USO) closed at $78.04, up $0.91 or +1.18%.

A weaker U.S. Dollar, a report showing slower U.S. economic growth and increasing odds the Federal Reserve would reduce the size or the pace of future rate hikes also underpinned prices. Also supporting higher prices were Russia gas cuts and rising price for Saudi crude in Asia.

Lower Inventories in the United States

U.S. crude oil stockpiles dropped 4.5 million barrels last week as exports surged to an all-time high due to U.S. crude oil’s big discount to international Brent, the Energy Information Administration said. The EIA further added that U.S. gasoline stocks fell by 3.3 million barrels on the week. Distillate stockpiles, which include diesel and heating oil, fell by 784,000 barrels.

OPEC+ May Hold Oil Output Steady or Make Small Hike

OPEC and its allies will consider keeping oil output unchanged for September when they meet next week, despite calls from the United States for more supply, although a modest output increase is also likely to be discussed, eight sources told Reuters.

Of eight OPEC+ sources spoken to by Reuters, two said a modest increase for September will be discussed at the August 3 meeting and five said output would likely be held steady, according to Reuters.

“There are various talks ranging from a small increase to a freeze on current levels,” one of the OPEC+ sources said.

OPEC+’s decision to hold output steady would disappoint President Biden, who went to Saudi Arabia early in the month and came away with the notion the country had agreed to raise output.

Short-Term Outlook

Despite concerns over a U.S. recession, crude oil traders remained unfazed by the news of a drop in U.S. Gross Domestic Product (GDP), especially since it may mean the Fed will cut back on its aggressive interest rate hikes.

Furthermore, this week’s massive crude oil draw down essentially served as a sign that demand destruction concerns have disappeared. It was just two weeks ago that prices fell sharply when crude stockpiles jumped unexpectedly.