Oil Price Fundamental Daily Forecast – Weaker Dollar, Demand for Risk Underpinning Prices
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Monday after recovering from earlier weakness. Despite the rebound rally, the market is merely testing the upper band of its two week trading range.
Helping to cap gains are increasing demand concerns as rising coronavirus cases upset hopes for a smooth recovery in fuel demand, with the main crude benchmarks on track for their first monthly declines in multiple months after last week’s sell-off.
Helping to underpin prices is the weaker U.S. Dollar. A weak greenback tends to drive up foreign demand for dollar-denominated crude oil.
Brent is on track to fall for the first month in six while WTI is headed for its first monthly loss since April as the reimposition of mobility curbs in some countries clouds the outlook on fuel demand recovery.
More crude is also being exported from OPEC producers Iran and Libya despite efforts by the Organization of Petroleum Exporting Countries and their allies to limit output. Traders are still debating how much of an influence these moves will have on prices, but overall, increasing supply while demand is crumbling can’t be bullish.
On Friday, Baker Hughes reported that U.S. energy firms added oil and natural gas rigs for a second week in a row. Again the timing has to be questioned because of demand issues, but they may see the surge in COVID-19 cases as temporary.
There was some potentially bullish news over the weekend. OPEC Secretary General Mohammad Barkindo said on Sunday that commercial oil inventories in QECD countries are expected to stand only slightly above the five-year average in the first quarter of 2021, before falling below that level for the rest of the year.
Another potentially bullish development is the possibility of a strike. This would affect supply.
In Norway, one of the largest oil producers outside OPEC, a workers’ strike that may take place on September 30 is threatening to cut its production by 900,000 barrels per day, the Norwegian Oil and Gas Association (NOG) said on Friday.
Finally, the U.S. Commodity Futures Trading Commission (CFTC) said on Friday that money managers raised their net long U.S. crude futures and options positions in the week to September 22.
“The bulk of the buying that was seen over the week was driven by short-covering, with the gross short position falling by a little over 20k lots,” ING analysts said. Investors may have heeded the Saudi oil minister’s warning against shorting the oil market, they said.