Oil Price Fundamental Daily Forecast – Down on Demand Fears Ahead of API Supply Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Tuesday as a bearish outlook for the global economy continues to weigh on demand forecasts.

With the supply and demand situation relatively stable, crude oil traders have become more data-dependent and sentiment driven. Currently, the demand outlook is being clouded by signs of uncertain economic activity in the United States, China, the United Kingdom and the Euro Zone.

At 11:31 GMT, December WTI crude oil is trading $83.24, down $1.34 or -1.58% and December Brent crude oil is at $91.88, down $1.38 or -1.48%. On Monday, the United States Oil Fund settled at $70.40, down $0.17 or -0.24%.

Key Price Drivers:  Lower Chinese Imports, US Business Activity Contraction

In China, government data on Monday showed China’s crude oil imports in September were 2% lower than a year earlier, continuing a trend of lower imports at the same time it reported slowing retail sales, Reuters said.

In the U.S., business activity contracted for a fourth month in October, with manufacturers and services firms saying in a monthly S&P Global survey of purchasing managers published on Monday that client demand is falling.

The S&P Global/CIPS flash Composite Purchasing Managers’ Index in the UK showed a bigger-than-expected fall in business activity in October with Bank of England Deputy Governor Dave Ramsden call it “consistent with the economy being in recession.”

Finally, the Euro Zone is likely entering a recession with business activity contracting at the fastest pace in nearly two years this month as the cost-of-living crisis keeps consumers cautious and saps demand, a survey showed on Monday.

With signs of an economic slowdown in four major economies, one can see the difficulty in sustaining a meaningful rally with these events widely expected to pressure demand.

Late Session Shift to Supply Side of Equation

Late in the session at 20:30 GMT, trader focus will shift to the supply side of the equation with the release of weekly inventories data from the American Petroleum Institute (API).

The API report is expected to show an increase in U.S. crude oil inventories for the week-ending October 21, which could combine with the bleak demand outlook to put a lid on prices. Analysts polled by Reuters estimated on average that crude inventories rose by 200,000 barrels in the week to October 21.

Last week, the API reported a draw for crude oil of 1.27 million barrels for the week-ending October 14.

Short-Term Outlook

The price action suggests we’re still in the “Sell the Rally, Buy the Dip” mode. Sellers are responding to forecasts calling for lower demand due to bearish sentiment amid a weakening in global PMI’s.

On the other hand, the prices aren’t collapsing due to the potential for tighter supply because of the OPEC+ supply cuts and the upcoming EU embargo of Russian energy products.

We’re looking for more rangebound trading today with a slight bias to the downside.