Oil Price Fundamental Daily Forecast – Market Could Drop Sharply on Strong NFP Data

U.S. West Texas Intermediate and crude oil futures are trading lower on Friday after giving up earlier gains as a stronger U.S. Dollar and weaker economic outlook weighed while hopes of a Chinese demand boost limited losses.

At 11:30 GMT, March WTI crude oil is trading $73.76, down $0.16 or -0.22% and March Brent crude oil is at $78.53, down $0.16 or -0.20%. On Thursday, the United States Oil Fund ETF (USO) settled at $64.75, up $0.45 or +0.70%.

Both crude oil futures contracts were about $1.00 higher shortly after the pre-market opening, but those gains disappeared when the U.S. Dollar hit a one-week high in anticipation of a strong U.S. Non-Farm Payrolls report.

US Jobs Report Will Be a Major Influence Today

Friday’s U.S. Non-Farm Payrolls report will have a major influence on crude oil prices today. Firstly, a stronger-than-expected report could drive up interest rates and consequently the U.S. Dollar. Since crude is a dollar-denominated commodity, a stronger greenback is likely to reduce foreign demand for U.S. oil.

Secondly, a stronger labor market reading will mean the Fed will have to work harder to slow down inflation. This means higher interest rates. Aggressively raising interest rates will bring the U.S. economy closer to a recession that will likely lead to lower crude oil demand.

In Other News …

The world’s top crude exporter, Saudi Arabia, lowered prices for the Arab light crude it sells to Asia to its lowest since November 2021 amid the global pressures hitting oil.

The Saudis lowered prices for the flagship Arab light crude it sells to Asia to $1.80 a barrel above the Oman/Dubai average, the lowest since November 2021, Aramco said on Thursday.

The price cut – $1.45 a barrel less than the January official selling price and in line with market expectations – comes amid global pressures hitting oil prices, which are set for small gains in 2023 as COVID-19 flare-ups in China threaten demand growth and offset the impact of supply shortfalls caused by sanctions on Russia.

The cut also comes as Russia diverts its oil from Europe to Asia, alongside a price cap introduced by the Group of Seven (G7) nations that restricts Russian oil trade using Western financial, shipping and insurance services.

Daily Forecast

It’s hard to build a case for a price rise in crude oil, given the bearish fundamentals, ranging from increasing COVID cases in China to the threat of higher rates in the U.S. and a possible recession.

Crude oil could rise if the jobs report is weak. This would shift sentiment towards a 25 basis point Fed rate hike in February. The dollar could weaken on this news, driving up foreign demand for crude.

As mentioned earlier, strong labor market data will likely drive the dollar higher and weaken crude prices further.