Oil Price Fundamental Daily Forecast – Higher Rates Fueling Recession Fears, Lower Demand Outlook

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Thursday but gains are likely being capped by a stronger U.S. Dollar. Meanwhile fear of further increases by several major central banks is also keeping buyers on the sidelines.

At 12:33 GMT, March WTI crude oil futures are trading $77.27, down $0.06 or -0.08% and February Brent crude oil is at $82.59, down $0.11 or -0.13%. On Wednesday, the United States Oil Fund ETF (USO) settled at $67.38, up $1.52 or +2.31%.

Higher US Dollar Weighs after Fed’s Hawkish Tone

Federal Reserve Chair Jerome Powell on Wednesday said that the U.S. central bank will raise interest rates further next year, even as the economy slips towards a possible recession.

Powell’s hawkish tone helped lift the U.S. Dollar. A stronger greenback can weaken oil demand because it makes the dollar-denominated commodity more expensive for foreign buyers.

Higher interest rates can also push the economy into recession which would lead to lower fuel demand.

Oil Prices Pressured by Weaker Data from China

Overnight, a pair of economic reports from China came in much weaker than expected, further deepening concerns over global demand and recession.

According to Reuters, the world’s second-biggest economy lost more momentum as factory output slowed and retail sales extended declines, both missing forecasts and clocking their worst readings in six months as COVID-19 cases surged.

Pipeline Resuming Operations

Overnight weakness is also being attributed to the news that Canada’s TC Energy Corp said it is resuming operations in a section of its Keystone pipeline, a week after a leak of more than 14,000 barrels of oil in rural Kansas triggered the whole pipe’s shutdown.

More Bearish News

The Energy Information Administration (EIA) said on Wednesday that U.S. crude oil stockpiles rose by more than 10 million barrels last week, the most since March 2021. Finally, Goldman Sachs on Wednesday reduced its oil forecasts for 2023, citing a projected market surplus early next year as supply from Russia remains robust and China demand ramps up.

Short-Term Outlook

The U.S. Dollar will be closing watched the next two days. If its downtrend resumes then WTI and Brent crude oil could be underpinned with traders possibly shrugging off the other bearish events.

However, a stronger dollar would be bearish for crude oil. This would be another negative pushing buyers out of the market.