Oil Price Fundamental Daily Forecast – Pressured by Demand Concerns Over Fresh China COVID Restrictions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday while testing the key technical area that has held as support for two months. The catalysts behind today’s selling pressure are new COVID-19 lockdown measures in China, high inflation and rising interest rates. All three events point toward lower fuel demand. Also contributing to the weak price action is the U.S. oil boom, which is helping to expand supplies incrementally.

At 13:05 GMT, October WTI crude oil is at $87.57, down $1.98 or -2.21% and December Brent crude oil futures are at $92.29, down $1.92 or -2.04%. On Wednesday, the United States Oil Fund ETF (USO) settled at $73.12, up $0.01 or 0.01%.

China’s Zero-COVID Curbs Continue to Drive Demand Concerns

Reuters reported that Asia’s factory activity slumped in August as China’s zero-COVID curbs and cost pressures continued to hurt businesses, darkening the outlook for the region’s fragile recovery.

China’s factory activity contracted for the first time in three months in August amid weakening demand, while power shortages and fresh COVID-19 flare-ups disrupted production, a private sector survey showed on Thursday.

The unexpectedly weak reading echoed China’s official PMI released on Wednesday, which was also below the 50-point mark that separates growth from contraction on a monthly basis.

In other news, the southern Chinese tech hub Shenzhen tightened COVID curbs as cases continued to mount on Thursday, with large events and indoor entertainment suspended for three days in the city’s most populous district, Baoan.

Volatility Follows Concerns about Inadequate Supply

Recent oil volatility is being tied to concerns about inadequate supply in the 6 months following Russia’s invasion of Ukraine and as OPEC considers a production hike.

OPEC’s output hit 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June. Both are at their highest levels since 2000.

Nonetheless, data from the group showed the oil market will have a small surplus of just 400,000 bpd in 2022, much less than forecast earlier, according to OPEC+.

Daily Forecast

Heading into the end of the week, the bearish wildcard remains a possible revival of a 2015 Iran nuclear deal which would allow the OPEC member to boost its oil exports. Additionally, French President Emmanuel Macron said on Thursday he hoped a deal would be concluded in the coming days.

Friday’s U.S. Non-Farm Payrolls report could fuel a volatile response, but it’s a guess right now since the markets are 75% certain the Fed is going to raise rates by 75-basis-points at its September 20-21 policy meeting.