Oil Price Fundamental Daily Forecast – Lower Demand Worries Outweighing OPEC+ Supply Cuts

U.S. West Texas Intermediate and international-benchmark Brent crude oil prices are edging lower on Friday after giving back earlier gains. A rebound in the U.S. Dollar is the early catalyst driving the price action.

Bullish traders are hoping to resume Thursday’s rally that was fueled by worries about low U.S. diesel stocks after a government report showed a larger-than-expected drop in weekly inventories.

Nonetheless, the markets are still trading lower for the week with the threat of a global recession and lower demand putting considerable pressure on prices.

At 13:02 GMT, December WTI crude oil futures are trading $86.49, down $1.46 or -1.66% and December Brent crude oil is at $93.28, down $1.29 or -1.36%. On Thursday, the United States Oil Fund ETF (USO) settled at $72.54, up $1.61 or +2.27%.

The price action is expected to remain volatile over the near-term with bullish traders garnering support from the OPEC+ decision to cut oil production by 2 million barrels per day and the bears worried about lower demand due to global recessionary fears.

Steep Drawdown in US Distillate Stocks Fueled Thursday’s Rapid Turnaround

U.S. crude stocks rose by nearly 10 million barrels last week after another big release from government reserves, while distillate inventories fell sharply, the Energy Information Administration (EIA) said on Thursday.

The sharp drop in distillate stockpiles spurred traders to shrug-off the steep rise in crude oil, driving prices higher for the session. Distillate inventories fell by 4.9 million barrels to 106.1 million barrels, their lowest since May, versus expectations for a 2 million-barrel drop.

Short-Term Outlook

After oscillating between strong and weak earlier in the session on Friday, it looks as if sellers have taken control and are likely to pressure prices into the close. This puts the markets in a position to close more than 4% lower after two weeks of gains on concern over the global economy.

Significant bearish events are forcing downward corrections of oil demand forecasts into the end of the year and next year. Although these events are weighing on prices, the recently announced OPEC+ production cuts are helping to generate some support. This begs the question, “Will OPEC and its allies be willing to make further adjustments to output to stabilize prices?”

The bearish factors exerting the most downward pressure on prices at this time include: China’s zero-COVID policy that is weighing heavily on economic activity and thus oil demand, the International Energy Agency’s (IEA) cut to its oil demand forecast for this and next year and its warning of a potential global recession, and red-hot U.S. core inflation that continues to reinforce views that interest rates would stay higher for longer with the risk of a global recession.