Oil Price Fundamental Daily Forecast – Trend Changes to Down on Dollar Strength, Rising Supply, Demand Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower shortly after the mid-session on Thursday as prices dropped to a two week low. The catalysts behind the plunge are a stronger U.S. Dollar, rising U.S. crude and fuel inventories and renewed worries over demand recovery.

At 18:11 GMT, May WTI crude oil futures are trading $61.05, down $3.58 or -5.54% and June Brent crude oil is at $64.07, down $3.50 or -5.18%.

Strong Greenback Pressures Dollar-Denominated Crude Oil

A jump in the value of the dollar after the U.S. Federal Reserve meeting has also contributed to the oil sell-off. Since crude oil is dollar-denominated, a stronger greenback tends to weigh on foreign demand for the commodity.

The Dollar was supported after the Federal Reserve said hours prior that it does not currently expect to hike interest rates through 2023. Fed Chair Jerome Powell reiterated that the central bank wants to see inflation consistently above its 2% target and material improvement in the U.S. labor market before considering changes to rates or its monthly bond purchases.

The Fed also said that it expected gross domestic product growth to reach 6.5% this year and for core inflation to reach 2.2%, with both measures then projected to cool off in 2022. Those projections, combined with the expected path of the benchmark interest rate, shows that the central bank is sticking to its plan of letting the economy run hot as the U.S. recovers from the pandemic.

Crude Inventories Up for Fourth Straight Week

Prices are also being pressured after a government report on Wednesday showed U.S. crude inventories rose 2.4 million barrels the week-ending March 12, following Tuesday’s American Petroleum Institute (API) reporting estimating a 1 million-barrel drop. Analysts had forecast an increase of 3 million barrels.

Further adding pressure to prices, the International Energy Agency (IEA) said in its monthly report that oil prices are unlikely to mount a dramatic and sustained surge despite vaccines expected to boost demand later this year. The Paris-based energy watchdog said demand is not expected to return to pre-pandemic levels until 2023.

Renewed COVID-19 Related Demand Worries

New concerns about weaker demand in Europe also weighed on crude oil prices. Several countries have paused the use of Astra Zeneca’s COVID-19 vaccine on worries over possible side effects. Germany is seeing rising coronavirus cases. Italy is imposing a nationwide Easter lockdown and France plans to impose tougher curbs.

Short-Term Outlook

The main trend changed to down on the daily chart on Thursday. The current downside momentum is expected to drive the WTI futures contract into the retracement zone at $59.58 to $57.64.

We’re not uncomfortable with this sell-off at all since it was well overdue. We don’t expect prices to “crash” like last year because of the ongoing OPEC+ production cuts.

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