WTI and Brent Crude Oil

Oil Price Fundamental Daily Forecast – Gloomy Demand Outlook Weighs on Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday shortly before the regular session opening after hitting multi-month highs the previous session  on the back of a much bigger than expected drop in U.S. crude stockpiles.

Oil prices are struggling to hold on to their five month highs reached Wednesday, as fuel demand worries caused by a second wave of coronavirus infections outweighed declines in the U.S. Dollar.

At 11:20 GMT, September WTI crude oil is trading $41.87, down $0.32 or -0.76% and December Brent crude oil is at $45.71, down $0.26 or -0.57%.

US Energy Information Administration Weekly Inventories Report

The EIA reported on Wednesday that U.S. crude oil inventories fell 7.4 million barrels during the week-ending July 31. Analysts had expected an inventory decline of 3.267 million barrels for the week.

On Tuesday, the American Petroleum Institute reported an inventory draw of 8.587 million barrels for the last week of July.

The EIA also reported an increase in gasoline inventories of 419,000 barrels, after a 700,000-barrel build estimated the previous week. Distillate fuels inventory increased 1.6 million barrels for the week to July 31. That compared with a build of half a million barrels a week earlier.

Gasoline production last week averaged 9.3 million bpd, compared with 9.2 million bpd a week earlier. Production of distillates last week averaged 4.9 million bpd, compared with 4.8 million bpd a week earlier.

Key Takeaways from the EIA Report

U.S. crude oil refinery inputs averaged 14.6 million barrels per day during the week-ending July 31, which was 42,000 barrels per day more than the previous week’s average.

U.S. crude oil imports averaged 6.0 million barrels per day last week, increased by 0.9 million barrels per day from the previous week.

Total products supplied over the last four-week period averaged 18.3 million barrels a day, down by 13.5% from the same period last year.

Over the past four weeks, gasoline product supplied averaged 8.7 million barrels a day, down by 9.1% from the same period last year.

Demand Outlook Bleak

The International Energy Agency (IEA) updated its oil demand forecast and now expects demand to suffer a 7.9-million-bpd decline this year. This compares with expectations of an 8.9-million-bpd demand contraction by OPEC.

Earlier in the week, the International Monetary Fund (IMF) said it expected crude oil demand to record an 8-percent decline this year. As a result, prices will be 41 percent lower than they were last year on average, the IMF said in a report titled ‘Global Imbalances and the COVID-19 Crisis’.

Daily Forecast

Today’s early price action clearly indicates traders are worried about gasoline and distillate demand at a time when U.S. central bankers said the resurgence in cases was slowing the economic recovery in the world’s biggest oil consumer.

Although it is easy for momentum driven hedge funds to react to large drawdowns in crude oil inventories, it is also difficult to hold on to those gains with demand for products having stalled.

Furthermore, bullish traders aren’t showing much of a reaction to the plunge in the U.S. Dollar, which should be driving up dollar-denominated crude oil and gasoline. Additionally, gasoline demand is weak as the U.S. driving season winds down, which doesn’t bode well for prices in September.

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.