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Oil Price Fundamental Daily Forecast – Vaccine Approval News Just Enough to Encourage Weak Shorts to Cover

By:
James Hyerczyk
Published: Aug 24, 2021, 08:51 UTC

Although Monday’s price action was impressive, it was fueled by hope, which is not a particularly bullish reason to buy crude oil.

WTI and Brent Crude Oil

In this article:

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Tuesday on the hopes that U.S. drug regulator full approval of the Pfizer coronavirus vaccine will increase U.S. vaccination rates and perhaps bringing a faster end to the infection surge sweeping the country.

A higher rate of vaccinations could help the country avoid a slowdown of the economic recovery. This would help curtail fears of virus-related demand destruction.

At 08:15 GMT, October WTI crude oil is trading $66.34, up $0.70 or +1.07% and October Brent crude oil is at $69.61, up $0.86 or +1.25%.

Prices are also being supported by a weaker U.S. Dollar, which theoretically drives up foreign demand for the dollar-denominated asset. The greenback fell sharply on Monday after hitting a 9-1/2 top last week on thoughts the Federal Reserve would delay its plans for an early tapering of economic stimulus due to coronavirus concerns.

Potentially Bullish Developments

Traders are going to continue to monitor the U.S. crude oil and gasoline supply situation for signs of a slowdown in demand. The good news is that U.S. crude and gasoline inventories likely declined last week, based on a preliminary Reuters poll ahead of Tuesday’s American Petroleum Institute (API) report and Wednesday’s Energy Information Administration (EIA) inventories report on Wednesday.

In other news, Indian refiners’ crude throughput in July bounced to its highest in three months as fuel demand rebounded, which supported prices. Data showed that the easing of coronavirus restrictions boosted economic activity and fed demand for fuel.

Potentially Bearish Developments

First and foremost are new concerns over rising U.S. production. Wednesday’ EIA report on U.S. production data will be watched closely. Traders are anticipating a steady rise in production due to an increase in the number of operating U.S. oil rigs, according to data from energy services firm, Baker Hughes.

Adding to the potential bearishness, the U.S. Department of Energy said Monday it would sell up to 20 million barrels of crude from the emergency oil reserve to comply with legislation passed in recent years, with deliveries of the oil to take place between October 1 and December 15.

Additionally, the rapid spread of the highly infectious Delta variant of the novel coronavirus and low vaccination rates in Asia, overall, however, is expected to keep a lid on prices while continuing to suppress fuel demand.

Daily Forecast

Although Monday’s price action was impressive, it was not a trend changing event, but mostly short-covering. The move was fueled by hope, which is not a particularly bullish reason to buy crude oil.

Furthermore, with Asia in trouble due to the surge in coronavirus infections and low vaccination rates, the U.S. inventories reports are going to have to show huge drawdowns to offset the bearish news from Asia.

We’re going to be neutral-to-bearish over the short-run until we see what OPEC+ is going to do with production when it meets next week.

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

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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