Oil Price Fundamental Daily Forecast – Rising Rates, Recession Fears Creating Demand Worries

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures prices are tumbled more than 3.5% lower on Monday in a harsh start to the week as investors expressed concerns about hawkish signals from Federal Reserve policymakers against the backdrop of slowing economic growth and lower demand.

At 15:37 GMT, October WTI crude oil futures are trading $89.35, down $1.09 or -1.21% and December Brent crude oil is at $94.12, down $1.02 or -1.07%. The United States Oil Fund is at $74.01, down $0.05 or -0.07%.

Hawkish Fed Officials, Powell’s Speech Spooking Traders

Hawkish from Federal Reserve policymakers and Friday’s speech by Fed Chair Powell at the central bankers’ conference at Jackson Hole are weighing on investor sentiment on Monday. The Fed officials have been pretty clear in stating the case for more aggressive rate hikes, but traders really want to know what Powell thinks about the central bank’s monetary policy tightening path.

After pivoting a little toward a slower pace of rate hikes, “Jackson Hole will give Powell an opportunity to reset the narrative and suggest the Fed is going to remain vigilant and aggressive,” according to Kenny Polcari, managing partner at Kace Capital Advisors.

Fed officials are indicating that inflation is the enemy and they are willing to do whatever it takes to drive it back to their 2% mandate, even if it means a recession.

China’s Rate Cut Announcement Raises Recession Fears

Slowdown fears also knocked out markets globally. China’s central bank trimmed some key lending rates on Monday in a bid to support a slowing economy and stressed housing sector. Slowing economy equals lower demand for crude.

Demand for crude is also being threatened by new restrictions in China due to a sweltering heat wave.

Iran Nuclear Deal Still in Play

Bloomberg is reporting that Iran sent a “reasonable” response to the European Union’s latest proposal for saving the 2015 nuclear accord and diplomats might meet this week in Vienna to discuss the next steps, according to the bloc’s foreign-policy chief.

But Josep Borrell told reporters in Santander, Spain, that the U.S. hadn’t submitted its answer to the Iranian positions, which were handed to Brussels on August 15.

Bloomberg also wrote over the weekend that if a deal is reached to restore the 2015 nuclear accord, Iranian crude could save a market that’s about to lose even more Russian barrels.

More bearish news, means more selling pressure.