Oil Price Fundamental Daily Forecast – Recession Fears Rise as US Business Activity Contracts

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures extended their weekly losses on Friday amid demand worries and concerns over returning energy supply from Libya and Russia.

At 13:31 GMT, September WTI crude oil is at $95.48, down $0.87 or -0.90% and September Brent crude oil is at $103.29, down $0.57 or -0.55%.  Shortly after the cash market opening, the United States Oil Fund ETF (USO) is at $75.41, down $0.08 or -0.11%.

Three factors are weighing on bullish sentiment including recession worries after social media company Snap PLC missed the top and bottom lines in its second quarter earnings and said it plans to ‘substantially’ slow its rate of hiring as well as the rate of operating expense growth. Microsoft and Apple also said this week they were slowing hiring.

Investors were also reacting to signs of lackluster U.S. gasoline demand and expanding stockpiles. Data released earlier this week showed that U.S. gasoline demand had dropped nearly 8 percent from a year earlier in the midst of the peak summer driving season.

Finally, Libya resumed oil exports and Russia began sending natural gas to Europe through the Nord Stream pipeline, helping ease supply concerns.

Crude Pressured as US Business Activity Contracts for First Time in 2 Years

Crude oil prices fell further after U.S. business activity contracted for the first time in nearly two years in July as a sharp slowdown in the service sector outweighed continued modest growth in manufacturing, painting a glum picture for an economy stunted by high inflation, rising interest rates and deteriorating consumer confidence.

S&P Global on Friday said its preliminary – or “flash” – U.S. Composite PMI Output Index had tumbled far more than expected to 47.5 this month from a final reading of 52.3 in June. With a reading below 50 indicating business activity had contracted, it is a development likely to feed into a vocal debate over whether the U.S. economy is back in – or near – a recession after rebounding sharply from the downturn in early 2020 at the start of the COVID-19 pandemic.

Daily Forecast

The PMI news is bearish because it indicates a slowing economy, which is not good for demand. Combine this with low gasoline demand and a possible rise in supply then we could see a sharp break over the near-term into a major retracement zone and potential support area at $88.54 to $82.80.