Oil Price Fundamental Weekly Forecast – COVID Curbs, Strong US Dollar to Fuel Price Slide

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures fell sharply last week as bullish traders finally recognized the threat of the new wave of coronavirus cases on future demand after shrugging it off for weeks.

The primary concerns for traders is the potential drop in demand for crude from the United States and China, the world’s two largest users. Last week’s government inventories report was mixed with crude oil supply rising and gasoline supply dropping. Finally, providing some support late in the week were escalating tensions in the Middle East

Last week, September WTI crude oil settled at $68.28, down $5.67 or -7.67% and October Brent crude oil finished at $70.70, down $4.71 or -6.66%.

Demand Worries Driven by Rising Coronavirus Delta-Variant Cases

Oil prices were pressured last week as concern about rising cases of the Delta coronavirus variant outweighed expectations for another weekly draw in U.S. inventories.

In China, the spread of the variant from the coast to inland cities has prompted authorities to impose strict measures to bring the outbreak under control.

Japan is also poised to expand emergency restrictions to more regions of the country, while U.S President Joe Biden said that COVID-19 cases in the United States, which have climbed to a six-month high, will go up before they come down and that the new Delta variant is taking a needless toll on the country.

Mixed Government Storage Report

In its weekly inventories report, the U.S. government reported that crude inventories rose by 3.6 million barrels in the week to July 30 to 439.2 million barrels, compared with analysts’ expectations in a Reuters poll for a 3.1 million-barrel drop.

Gasoline stocks fell by 5.3 million barrels, the EIA said, far more than expectations for a 1.8 million-barrel drop. Distillate stockpiles, which include diesel and heating oil, rose by 833,000 barrels, versus expectations for a 543,000-barrel drop.

Weekly US Oil Rigs Rise – Baker Hughes

Baker Hughes on Friday reported that the number of active U.S. rigs drilling for oil rose by 2 to 387 last week. The total active U.S. rig count, which includes those drilling for natural gas, rose by three to stand at 491, according to Baker Hughes.

Weekly Forecast

Given the recent surge in global coronavirus cases, we could start to see the damage the rise has caused to demand this week. That puts added importance on the American Petroleum Institute (API) and Energy Information Administration (EIA) weekly reports.

Last week, the EIA report showed overall product supplied remained high, which suggested that U.S. demand for fuel was weathering the increase in coronavirus infections. However, this number can change quickly given the jump in COVID-19 cases.

Traders should continue to monitor refining activity or fuel demand to see if it’s affected by the increased infection rate both in the United States and worldwide.

COVID curbs and the sharp rise in the U.S. Dollar could also weigh on prices. The pace of the selling could slow if Middle-Easter tensions escalate, but only to the extent that they have a direct impact on supply.