Oil Price Fundamental Daily Forecast – Supply-Driven Rally Stalls Ahead of US GDP Data

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Thursday after an early attempt to continue yesterday’s breakout to the upside failed to attract enough buyers to continue the move.

The price action is understandable. It’s hard to buy strength in the face of red-hot inflation, rising interest rates and a looming global recession. Nonetheless, bullish traders are banking on those factors to be offset by the start of upcoming production cuts by OPEC+ and the European Union’s embargo of Russian crude oil.

At 07:29 GMT, December WTI crude oil futures are trading $87.40, down $0.51 or -0.58%. December Brent crude oil is at $95.21, down $0.48 or -0.50%. On Wednesday, the United States Oil Fund ETF (USO) settled at $72.96, up $2.35 or +3.33%.

Traders Eyeing ECB Rate Hike, US Advance GDP Report

Traders are also reacting to a slight recovery in U.S. Treasury yields and the U.S. Dollar ahead of a key interest rate decision by the European Central Bank (ECB) and the major U.S. Advance GDP report.

The ECB is widely expected to raise its benchmark rate by 75 basis points. The U.S. Advance GDP report, due to be released at 12:30 GMT, is expected to show 2.3% growth, higher than previously reported.

The GDP report is likely to have the most impact on crude oil prices since it will influence the U.S. Dollar. A lower-than-expected reading could drive the greenback lower, which could help boost foreign demand for dollar-denominated crude oil. A strong reading could boost the dollar, which could weigh on crude prices.

Lingering Fears over Slack Demand in China

Traders are blaming China’s “muddled economic policies” for today’s weakness, but sentiment is often hard to prove. Worries about a global recession may be the best reason for today’s losses since slower growth will have a negative effect on demand. That may be true, however, we’re also seeing support generated by a bullish outlook due to the upcoming OPEC+ output cuts and the EU shutdown of Russian energy products.

Daily Forecast

The major bullish influence on prices over the near-term will be the OPEC+ production cuts and the EU embargo of Russian oil. Unfortunately, instead of having a bonafide rally, crude oil prices are likely to remain rangebound because of the ‘noise’ in the market ahead of next week’s Fed interest rate decision.

Once traders find out if the Fed will trim the pace of rate hikes in December, the market will be free from some of the ‘noise’. This will allow traders to focus clearly on the true supply/demand fundamentals.

We see a bullish trend developing in crude but we may have to wait until after November 2 before we see enough buyers to sustain the upcoming rally.