Oil Price Fundamental Weekly Forecast – Fed Rate Hike Expected to Weigh on Fuel Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil finished higher last week with Brent futures significantly outperforming WTI because of strong demand in Asia.

WTI crude was enjoying a week of solid gains until Wednesday when a government report showed that U.S. gasoline demand had dropped nearly 8% from a year earlier in the midst of the peak summer driving season. Traders blamed record prices at the pump from the surprise decline.

Last week, September WTI crude oil settled at $94.70, up $0.13 or +0.14% and September Brent crude oil closed at $103.20, up $2.04 or +2.02%. Additionally, the United States Oil Fund ETF (USO) settled at $74.53, up $0.79 or +1.07%.

Lower Gasoline Demand Weighs on WTI Crude Oil Prices

The U.S. Energy Information Administration (EIA) reported on Wednesday that U.S. gasoline stockpiles posted a larger-than-expected build on weakened demand during the week-ending July 15.

According to the EIA, gasoline demand continued to sag, and supply of that product over the last four weeks was 8.7 million bpd, or about 7.6% lower than the same time a year ago. This news came as a surprise since the United States is in the middle of the summer driving season.

Furthermore, U.S. gasoline stocks rose by 3.5 million barrels in the week to 228.4 million barrels, compared with expectations for a 71,000-barrel rise.

More Supply Coming from Libya and Russia

Prices were also capped last week on the news of additional supply from Libya, and after the European Union said it would allow Russian state-owned companies to ship oil to third countries under an adjustment of sanctions agreed by member states last week.

Libya’s National Oil Corp (NOC) said on Wednesday crude production had resumed at several oilfields, after lifting force majeure on oil exports last week.

Production has restarted at fields belonging to Waha Oil Company at a rate of 70,000 barrels per day (bpd) and will be gradually increased until normal rates are achieved, the state-owned NOC said in a statement.

Russian state-owned companies Rosneft and Gasprom will be able to ship oil to third countries in a bid to limit the risks to global energy security.

Weekly Outlook

The tone of the market this week is likely to remain bearish amid worries that aggressive interest rate hikes by the U.S. Federal Reserve and other powerful central banks would slash global fuel demand. Officials at the U.S. Federal Reserve have indicated that the central bank would likely raise rates by 75 basis points at its July 26-27 meeting.

Adding to the bearish sentiment will be the additional oil from Libya and Russia.