Oil Price Fundamental Daily Forecast – Underpinned by Rebounding China Demand, Supply Disruption Threat

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Thursday. Reuters is attributing the move to the prospect of higher Chinese demand and geopolitical risks fueled by a possible escalation of the war in Ukraine.

At 09:52 GMT, November WTI crude oil is trading $83.48, up $0.54 or +0.65% and the December Brent crude oil market is at $89.36, up $0.56 or +0.63%. On Thursday, the United States Oil Fund ETF (USO) settled at $68.72, down $0.50 or -0.72%.

BOJ Intervention Fuels Temporary Short-Covering Rally

My work suggests a sudden reversal in the U.S. Dollar after the Bank of Japan intervened to drive the Yen higher and the dollar lower, may have had something to do with the move. After all, a weaker greenback tends to drive foreign demand for dollar-denominated crude oil.

However, so far all we’re seeing is a mild reaction to the intervention. Furthermore, there is nothing that suggests the event will have a long-term influence on the direction of the Dollar/Yen. The fundamentals didn’t change. The extreme divergence between Federal Reserve monetary policy and Bank of Japan monetary policy remains intact.

With nearly zero chance to reverse the long-term trend in the Dollar/Yen, the BOJ may have been trying to remind the market that they are watching. Nonetheless, there is nothing to suggest the U.S. Dollar is headed lower, which means a rising dollar should continue to weigh on foreign demand for crude oil.

China Crude Demand is Rebounding after Lifting of Strict COVID-19 Restrictions

At least three Chinese state oil refineries and a privately run mega refiner are considering increasing runs by up to 10% in October from September, eyeing stronger demand and a possible surge in fourth-quarter fuel exports, people with knowledge of the matter said, Reuters reported.

Chinese refiners are expecting Beijing to release up to 15 million tonnes worth of oil products export quotas for the rest of the year to support the no. 2 economy’s sagging exports. Such a move would signal a reversal in China’s oil products export policy, add to global supplies and depress fuel prices, according to Reuters.

Traders Eyeing Possible Supply Disruptions as Russia Begins Massive War Call-Up

Oil prices are being underpinned on Thursday after Russia pushed ahead on Thursday with its biggest military mobilization since World War Two.

President Vladimir Putin’s order to mobilize another 300,000 Russians to fight escalates a war that has already killed thousands, displaced millions, pulverized cities, damaged the global economy and revived Cold War confrontation.

Putin’s move has driven some weak shorts out of crude oil, while drawing the attention of just enough bullish speculators to provide support.

There hasn’t been a rally per se because so far the event hasn’t led to a supply disruption. Bullish traders are betting global leaders will get together to form some kind of agreement that will once again limit the amount of Russian oil hitting the open market.