Oil Price Fundamental Weekly Forecast – Traders Betting Rise in Virus Cases Will Have Little Impact on Demand

U.S. West Texas Intermediate and international-benchmark crude oil settled higher last week as investors shrugged off rising COVID-19 infections and focused on the OPEC-led supply cuts and a drop in U.S. stockpiles. Stronger-than-expected U.S. economic data is also providing support.

Based on the price action, we are not anticipating an end to the rally unless the economic data starts to reverse. Since most of the major reports are monthly, the emphasis this week will be on the Weekly Jobless Claims report.

Last week, August WTI crude oil settled at $40.65, up $2.16 or +5.61% and September Brent crude oil finished at $43.14, up $2.21 or +5.12%.

If the initial claims report starts to surge then this will indicate the coronavirus is starting to have an impact on the economy. More out of work people and businesses shutting down will have a negative impact on fuel and crude oil demand. This will be enough to start driving prices lower.

At this time, almost no one is expecting a second-wave of coronavirus cases to trigger the same demand destruction as the first-wave. We don’t expect it either, however, we can build a case for a near-term correction, and this centers on the labor market.

Basically, the more people working, the more demand for fuel. Another wave of lay-offs, and demand for fuel will drop, taking prices with them.

But why wait for the July Non-Farm Payrolls report to tell us if more people are going back to work? Watch the Weekly Unemployment Claims report. It will offer the earliest job market outlook.

U.S. Energy Information Administration Weekly Inventories Report

The EIA reported Wednesday that U.S. crude inventories fell by 7.2 million barrels for the week-ended June 26. That followed three consecutive weeks of increases. Analysts polled by S&P Global Platts had forecast an average crude supply decline of 2.7 million barrels. The EIA data also showed crude stocks at the Cushing, Oklahoma storage hub edged down by about 200,000 barrels for the week.

The EIA also said gasoline supply rose by 1.2 million barrels, while distillate stockpiles fell by 600,000 barrels last week. Traders were looking for a supply decline of 2.7 million barrels for gasoline and an increase of 900,000 barrels for distillate inventories.

Weekly Forecast

The momentum is pointing higher with the markets closing on their weekly highs last week. This trend could continue during the early part of the week until the API releases its data on Tuesday and the EIA on Wednesday. Last week, inventories dropped, but this doesn’t represent a trend yet. Stockpiles remain just below record highs.

In order to sustain the rally, inventories are going to have to continue to drop and people are going to have to continue to work, plain and simple.

The market does face some headwinds, however. There is the threat that U.S. firms will begin ramping up production. Gains could be capped if enough firms announce the restarting of production facilities.

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