Oil Price Fundamental Daily Forecast – Lower after Supply Disruption Avoided Following Iraqi Militant Clashes

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are down sharply on Tuesday after reversing earlier gains.

Traders are blaming fears of recession and lower demand due to aggressive central bank interest rate hikes for the sudden shift to the downside as well as reports that Iraqi crude exports have been unaffected by domestic skirmishes. These events push prices higher the previous session.

At 11:45 GMT, October WTI crude is trading $94.15, down $2.86 or -2.95% and December Brent crude oil is at $98.30, down $2.64 or -2.62%. On Monday, the United States Natural Gas Fund ETF (USO) settled at $31.97, down $0.02 or -0.06%.

Global Economies Facing Pain as Central Banks Move to Break Inflation

Federal Reserve Chairman Jerome Powell delivered a harsh commitment Friday to halting inflation, warning he expects the central bank to continue raising interest rates in a way that will cause “some pain” to the U.S. economy.

“While higher interest rates, slower growth, and softer labor market conditions will bring down inflation, they will also bring some pain to households and businesses,” he said in prepared remarks. “These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain.”

U.S. and global consumers have already experienced the pain of higher oil prices and soaring gasoline prices at the pump due to rampant inflation earlier in the year. Now they are going to have to endure the wrath of the central banks as they inflict more pain through the tightening of monetary policy in an effort to slow down the economy in order to drive down evil inflation.

Taming inflation is going to take coordination and extraordinary effort and most likely recession with job losses as well as devastation to emerging economies. It’s also going to put tremendous pressure on fuel demand, which is likely to keep pressure on crude oil prices.

OPEC+ May Try to Stabilize Prices through Coordinated Output Cuts

If recession is in the cards like many economists are predicting and crude oil demand drops as a consequence then look for OPEC+ to implement across the board production cuts in an effort to stabilize prices or risk the return to sub-$50 crude.

Traders are bracing for the upcoming OPEC+ meeting on September 5 after Saudi Arabia last week raised the possibility of production cuts, which sources said could coincide with a boost in supply from Iran should it sign a nuclear deal with the West.

Daily Forecast

Worries about a global recession and OPEC+ output cuts have been priced in for weeks. The surprise news is that the worst fighting for years in Baghdad between Shi’ite Moslem groups has not had an effect on Iraqi oil exports. This news took yesterday’s “war premium” off the board.

However, oil traders are likely to remain on edge for a potential supply disruption should the situation in Iraq escalate. It looks like this event could be this week’s bullish wildcard. Next week, it will be the OPEC+ decision to cut or not cut production.