Oil Price Fundamental Daily Forecast – Weighed Down By Recession Fears

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are down sharply late in the session on Friday. This is putting the markets in a position to post their lowest closes in four-weeks.

The catalysts behind the sell-off are mounting fears about a possible global economic recession following severe monetary policy tightening by several major central banks including the U.S. Federal Reserve, Bank of England and the Swiss National Bank.

At 19:13 GMT, August WTI crude oil is trading $108.04, down $7.21 and August Brent crude oil is at $113.09, down $6.72. The United States Oil Fund ETF (USO) is at $83.36, down $4.30 or -4.91%.

Strong Dollar Weighs on Foreign Demand

The quick rebound in the U.S. Dollar is also weighing on demand for dollar-denominated crude oil. The dollar index surged to a fresh two-decade high of 105.79 earlier in week, making it more expensive for holders of foreign currencies.

New US Sanctions on Iran Weaken Chances of Nuclear Deal

Supporting the market early in the session was the news of new U.S. sanctions on Iran. This dampened the chances of a nuclear deal with the rogue nation that would’ve brought new oil to the market.

China’s Pro-Growth Plan Provides Little Support

Underpinning crude oil prices was a pledge by China’s cabinet that it will accelerate the implementation of a raft of pro-growth policies to stabilize the world’s second largest economy. Traders, at the time, read this as bullish news because it had the potential to lead to increased demand at a time when supply is tight.

US Rig Counts Rise

A report from Baker Hughes said active oil and gas drilling rigs in the U.S. rose by 7 to 740 in the week. This was about 57% above year-ago levels. Drilling rigs increased by 4 to 584, while gas rigs climbed by three to 154, the report said.

Short-Term Outlook

Crude oil traders may have gotten their first taste of what is yet to come after the Federal Reserve released a report on Friday showing industrial production edged modestly higher in the month of May.

The Fed reported that industrial production nudged higher by 0.2 percent in May after surging by an upwardly revised 1.4 percent in April.

Economists had predicted production to rise by 0.4 percent. This compared to the 1.1 percent jump originally reported for the previous month.

The report indicates the economy is slowing. However, there is little in the data to suggest a recession is imminent. Nor is there enough evidence to encourage the Federal Reserve to ease up on its aggressive rate hike plans.