Oil Price Fundamental Daily Forecast – Stable Despite Fears of Potential Recession

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Thursday after plunging to their lowest levels since early May the previous session, as investors renewed their belief in tight supplies despite growing fears of a global recession.

Recession fears are mounting, which are raising some concerns for the demand outlook. Nonetheless, the long-term fundamentals remain bullish because of limited output from Russia. This is likely to curtail the downside pressure.

At 11:36 GMT, August WTI crude oil futures are trading $99.66, up $1.13 or +1.15% and September Brent crude oil is at $101.77, up $1.08 or +1.07%. On Wednesday, the United States Oil Fund ETF (USO) settled at $73.62, down $1.16 or -1.56%.

Despite the recent weakness, the overall consensus in the market is long-term bullish simply because it’s difficult to be overly bearish on oil prices as the monthly spreads remain in wide backwardation. This occurs when the nearby futures contracts are trading higher than the deferred months.

Supply Worries Eased by Ending of Norway Labor Strike

Besides the worries over a recession, the focus shifted back to demand concerns after supply worries were eased by the quick end of a strike in Norway’s petroleum sector on Wednesday.

According to Reuters, Norway’s government intervened to end the strike on Tuesday that had cut oil and gas output, a union leader and the labor ministry said, ending a stalemate that could have worsened Europe’s energy supply crunch.

Bullish Traders Overcoming API Crude Build

Prices are trading higher despite a report from the American Petroleum Institute (API) showing a surprise build in crude oil inventories. The API reported a build for the week-ending July 1 of 3.825 million barrels. Analysts were looking for a draw of 1.1 million barrels.

The build comes as the Department of Energy released 5.9 million barrels from the Strategic Petroleum Reserves in the week-ending July 1, to 492 million barrels – the lowest it’s been since 1985.

This week, the API reported a draw in gasoline inventories of 1.814 million barrels for the week-ending July 1, compared to the previous week’s 2.852-million-barrel build. Distillate stocks saw an inventory draw of 635,000 barrels for the week, compared to last week’s 2.613-million-barrel increase.

Short-Term Outlook

U.S. government data due on Thursday could shed some light on the state of domestic oil and fuel inventories. According to pre-report estimates, traders are expecting the U.S. Energy Information Administration (EIA) report to show a drawdown of about 1.1 million barrels of crude oil. 

Traders should continue to look for heightened volatility. Market participants are widely expected to react to any headlines calling for tighter supply or lower demand.