Oil Price Fundamental Daily Forecast – Whipsaw Action Continues as Supply Concerns Move to Forefront

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday, despite a plunging U.S. Dollar, amid expectations of a rise in U.S. crude inventories. Nonetheless, tight supplies and the weaker dollar may be limiting losses.

At 11:14 GMT, September WTI crude oil futures are trading $97.40, down $2.02 or -2.03% and September Brent crude oil futures are at $104.39, down $1.88 or -1.77%. On Monday, the United States Oil Fund ETF (USO) settled at $76.82, up $3.08 or +4.18%.

Over the past few weeks, oil prices have been whipsawed between concerns about supply as Western sanctions on Russian crude and fuel supplies over the Ukraine conflict have disrupted trade flows to refiners. The volatility is expected to continue over the next several months amid rising worries that central bank efforts to tame surging inflation may trigger a recession that would cut future fuel demand.

Supply in Focus Ahead of US Weekly Inventories Reports

Supply concerns will move to the forefront early this week ahead of Thursday European Central Bank interest rate decision and next week’s U.S. Federal Reserve monetary policy decisions.

According to a preliminary Reuters poll released on Monday, U.S. crude and distillate inventories are expected to show a rise while gasoline stockpiles likely fell.

Five analysts polled by Reuters estimated on average that crude inventories increased by around 300,000 barrels in the week to July 15.

The poll was conducted ahead of reports from the American Petroleum Institute (API), an industry group, due at 20:30 GMT on Tuesday, and the Energy Information Administration (EIA), the statistical arm of the U.S. Department of Energy, due at 14:30 GMT on Wednesday.

Saudi’s Don’t See Shortage of Oil in Global Market

Officials from Saudi Arabia did not give clear assurances an output increase was secured despite the Biden administration’s claims the Saudi’s indicated they would increase production.

Instead, the kingdom’s foreign minister said on Tuesday that he saw no shortage of oil in the market, but a lack of oil refining capacity, making it necessary to invest more in capacity to process crude oil into various oil products.

“As of today, we don’t see a lack of oil in the market. There is a lack of refining capacity, which is also an issue, so we need to invest more in refining capacity,” Foreign Minister Prince Faisal bin Farhan Al Saud told reporters in Tokyo.

Short-Term Outlook

Crude oil is in a downtrend on the daily chart so traders are likely to remain in the “sell the rally” mode until the main trend changes to up. However, the downside could be limited by a major support area at $89.54 to $82.80, which some traders perceive as the key value zone controlling the longer-term direction of the market.

Volatility is in the cards on Tuesday with expiration of the August futures contract in the cards on Wednesday.

Today’s API report, due to be released at 20:30 GMT, could also fuel some late session volatility that could set the tone for Friday’s session.

A bigger than expected inventories build could trigger a sharp break especially in the strong dollar environment. A smaller than expected build could fuel a late session price recovery but a strong dollar could limit gains.