Oil Price Fundamental Daily Forecast – Traders Struggling with Buying Strength at Two-Year HighsThe fundamentals remain bullish, but there are some worries that prices may be a little ahead of demand expectations.
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Friday on reduced concerns over fuel demand in the United States, Europe and China. Meanwhile, the acceleration of vaccinations and the reopening of several economies is helping to boost expectations of future demand increases.
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Oil Rally Has More Room to Run, Brent Expected to Hit $80/bbl – Goldman Sachs
U.S. investment bank Goldman Sachs expects Brent crude prices to reach $80 per barrel this summer, betting that a recent oil market rally will continue as vaccination rollouts boost global economic activity and demand for the commodity.
“Rising vaccination rates are leading to higher mobility in the U.S. and Europe, with global demand estimated up 1.5 mb/d (million barrels per day) in the last month to 96.5 mb/d,” the bank said in a note released on Thursday.
Goldman expects recovery in oil demand to continue and sees global demand reaching 99 mb/d in August.
Lifting of Iranian Oil Fears Providing Support
Concerns over the lifting of Iranian oil sanctions had been limiting gains in crude oil since April when the U.S. and Iran began negotiating a new nuclear deal. However, those concerns were dampened when U.S. Secretary of State Antony Blinken said on Tuesday he anticipates that even if Iran and the United States return to compliance with the nuclear deal, hundreds of U.S. sanctions on Tehran would remain in place.
“I would anticipate that even in the event of a return to compliance with the JCPOA, hundreds of sanctions will remain in place, including sanctions imposed by the Trump administration. If they are not inconsistent with the JCPOA, they will remain unless and until Iran’s behavior changes,” Blinken told a Senate committee.
Easing Concerns Over Rising US Gasoline Stocks
Earlier in the week, crude oil prices retreated after the Energy Information Administration reported a larger than expected build in gasoline inventory.
Total inventories soared by 7 million barrels, the largest increase for more than a year, since the first wave of the coronavirus epidemic was raging in April 2020, and in the 98th percentile since 1990.
Gasoline stocks hit 241 million barrels, still only slightly above the pre-epidemic five-year seasonal average of 234 million barrels.
Prices have recovered since the data was released on Wednesday after traders agreed it was probably attributable to the timing of transfers to retailers rather than evidence of weak consumption at the start of the driving season.
The fundamentals remain bullish, but there are some worries that prices may be a little ahead of demand expectations. Furthermore, some technical indicators are suggesting the markets are overbought. This could lead to a short-term pullback.
Prices are expected to continue to rise as the global economy reopens, but not even the most bullish hedge fund wants to get caught buying strength at two-year highs. Look for a short-term pullback if they decide to start lightening up on the long side and booking profits.
We don’t expect the selling to lead to a major change in trend, but we could see a short-term pullback into a value area. Even with traders now looking for $80 Brent crude oil, the market is still in a “buy the dip” mode.