WTI and Brent Crude Oil

Oil Price Fundamental Daily Forecast – Drop in US Dollar Encouraging Weak Shorts to Cover Positions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading more than 3% higher on Monday as traders attempt to break a seven-day losing streak. Gains are being fueled by short-covering and bargain-hunting. A weak dollar may also be driving up interest from foreign buyers. Despite the rally, traders are still expressing concerns over possible demand destruction due to the worldwide surge in cases of the Delta coronavirus variant.

At 12:50 GMT, October WTI crude oil is trading $64.18, up $2.04 or +3.28% and October Brent crude oil is at $67.25, up $2.07 or +3.18%.

US Dollar Weakens Driving Up Demand for Dollar-Denominated Crude Oil

The U.S. Dollar is down against a basket of major currencies on Monday, after registering its biggest weekly rise in more than two months last week as some doubts about the course of U.S. monetary policy encouraged investors to book profits.

The Dollar Index hit a nine-month high last week, climbing nearly 5% from May lows, as investors firmed up bets the U.S. Federal Reserve will start scaling back pandemic-era stimulus policies ahead of Europe and Japan.

But Dallas Federal Reserve President Robert Kaplan, a well-known hawk, dented those expectations on Friday, saying he might reconsider the need for an early start to tapering if the virus harms the economy.

The variant’s further spread might derail the Fed’s plans to taper its pandemic-era stimulus plan by the end of the year.

Sentiment Will Likely Remain Bearish

Many nations are responding to the rising coronavirus infection rate by implementing new restrictions and lockdowns, especially in the travel sector. Some are predicting more adjustments throughout the week with market sentiment expected to remain bearish. The main concerns are slower fuel demand worldwide, but these could be softened by a sudden surge in the vaccination rate.

China, the world’s largest oil importer, has imposed new restrictions, which is affecting shipping and global supply chains. Additionally, the United States and China have also imposed restrictions on flight capacity.

Fuel Demand Could Fall, while US Supply Rises

Traders have been pricing in a drop in demand for about two weeks, or right about the time the International Energy Agency (IEA) predicted demand would be lower into the end of the year. At the same time, U.S. energy firms are increasing supply. That is the formula for lower prices.

On Friday, energy services firm Baker Hughes reported the oil and gas rig count, an early indicator of future output, rose three to 503 in a week to August 20, its highest since April 2020.

Daily Forecast

With the market firmly in the hands of bearish traders, we don’t expect the current rally to amount to a change in trend. It could actually turn into another shorting opportunity especially if Tuesday’s American Petroleum Institute (API) and Wednesday’s U.S. Energy Information Administration (EIA) come out bearish.

Traders will be paying particular attention to gasoline demand and U.S. crude production.

For a look at all of today’s economic events, check out our economic calendar.

Published by

James Hyerczyk

James A. Hyerczyk has worked as a fundamental and technical financial market analyst since 1982. His technical work features the pattern, price and time analysis techniques of W.D. Gann.