Oil Price Fundamental Daily Forecast – Pressured as Rising Interest Rates Slow Global Economic Growth

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Thursday after reversing earlier weakness. The early price action suggests bullish traders may be defending a major support area well as the July 14 bottom.

After edging higher last week on worries over tightening supply, prices have fallen considerably this week on new concerns over too much supply due to weak fuel demand. The drop is fuel demand is correlated with rising interest rates that are slowing global economic growth.

If the correlation between rising interest rates and falling fuel demand continues then prices could drop a lot further since the major central banks are likely to continue to raise rates until at least September and possibly until the end of the year.

At 08:45 GMT, September WTI crude oil is at $90.97, up $0.31 or +0.34% and Brent crude oil is at $94.22, up $0.16 or +0.17%. On Wednesday, the United States Oil Fund ETF (USO) settled at $73.55, down $2.38 or -3.13%.

Rising U.S. rates are helping to underpin the U.S. Dollar, and since crude oil is a dollar-denominated assets, foreign demand is dropping. This assessment comes only a week after Russia’s shutdown of key pipeline into Europe drove U.S. crude oil exports to a record level.

Too Little Demand Leads to Too Much Supply

Data released by U.S. Energy Information Administration (EIA) showed crude stockpiles in the U.S. rose by 4.5 million barrels last week versus expectations for a draw of 630,000 barrels.

Gasoline stockpiles increased by 163,000 barrels the week-ending July 29 against expectations for a drop of 1.61 million barrels.

Distillate stockpiles, which include diesel and heating oil, fell by 2.4 million barrels in the week to 109.3 million barrels, versus expectations for a 1 million-barrel rise, the EIA data showed.

Surprisingly, net crude imports rose by 2.21 million bpd, the EIA said. The week before, U.S. crude oil exports surged to an all-time high last week, contributing to another fall in stockpiles, driven by overseas demand due to the big discount for U.S. crude when compared with international benchmark Brent.

The decline in stockpiles last week was in large part the result of a surge in crude exports to a record 4.5 million barrels per day in the latest week.

Daily Forecast

With rates expected to rise over the near-term, the dollar is likely to be supported. This could weigh on foreign demand, putting additional pressure on U.S. prices.

We could see a turnaround in the market if exports rebound, but that’s not going to happen unless demand in Europe for U.S. energy products suddenly rises. With their economy also showing signs of weakness, the Europeans will be hard-pressed to increase demand unless top supplier, Russia, makes another cut.

In the U.S., with the Fed rate hikes weighing on the manufacturing section, given Monday’s week PMI report for July, demand could also fall further. Additionally, continue to look for more releases by from the Strategic Petroleum Reserve (SPR) to exert downward pressure.

Technically speaking, the key area to watch is $89.54 to $82.80. It’s a wide range, but it’s also the area that separates the bulls from the bears. In my opinion, it is controlling the longer-term direction of the September WTI crude oil futures contract.