Oil Price Fundamental Daily Forecast – Weak NFP Data Could Set Bullish Tone

US West Texas Intermediate crude oil futures are edging lower Friday, reversing earlier gains as traders continue to weigh tight global supply concerns against recession worries. The market is also in a position to post its second straight weekly loss with most of that decline caused by an 8% drop on Tuesday.

At 07:13 GMT, August WTI crude oil futures are trading $101.88, down $0.85 or -0.83%. On Thursday, the United States Oil Fund ETF (USO) settled at $76.52, up $2.85 or +3.87%.

EIA Data Provides Mixed Signals

Data from the U.S. Energy Information Administration (EIA) showed on Thursday that product supplied, the best proxy for U.S. consumer demand, rose to 20.5 million barrels per day in the most recent week. Overall gasoline and distillate demand over the past four weeks, however, was down a little more than 5% from the year-ago period, Reuters reported.

U.S. crude inventories rose by 8.2 million barrels in the week to July 1, EIA data showed, driven by an increase in inventories and as refiners cut output.

Rate Hikes, Recession and Non-Farm Payrolls Report

Rate hikes and recession fears have been the source of volatility for weeks. Both have combined to weigh on prices on increased worries over lower demand.

Friday’s U.S. Non-Farm Payrolls report could be the source of additional volatility today.  The Fed would be inclined to continue its series of aggressive rate hikes if the numbers support a strong labor market. This could bring the economy closer to recession, which would be bearish for crude oil demand.

Softer than expected jobs data might might encourage the Fed to slow down the pace of the rate hikes. This could reduce the chances of recession, which would be supportive for prices.

Fed Could Tone Down Size of Rate Hikes after July

Two of the Federal Reserve’s most vocal hawks on Thursday said they would support another 75 basis-point interest rate increase later this month. But a downshift to a slower pace afterward, even as both downplayed the risk of higher borrowing costs pushing the United States into recession, according to Reuters.

Short-Term Outlook

Today’s U.S. Non-Farm Payrolls report could drive the price action in crude oil on Friday.

Look for downward pressure on crude oil if traders decide the jobs data is strong enough to warrant additional aggressive rate hikes from the Fed. Since this could increase the chances of a recession and lower demand.

Data coming in below expectations could encourage the Fed to slow down the size of future rate hikes after July’s 75-basis point rise. This could drive prices higher today.

A third scenario suggests there could be a limited reaction to the NFP report with next week’s consumer inflation report5 taking on more importance.