Oil Price Fundamental Daily Forecast – Lower as Traders Brace for New Mass COVID Testing in China

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower on Monday on renewed concerns over possible COVID restrictions in China. Traders are bracing for new mass COVID testing that could hit demand at a time when the market is concerned about a possible global recession. These concerns are outweighing lingering worries about tight supply.

At 09:42 GMT, September WTI crude oil futures are trading $99.73, down $1.80 or -1.77% and September Brent crude oil is at $105.37, down $1.65 or -1.54%. On Friday, the United States Oil Fund ETF (USO) settled at $78.55, up $2.00 or +2.61%.

Shanghai Bracing Fresh COVID-19 Curbs

Crude oil traders fear demand could take a hit on the news that multiple Chinese cities are adopting fresh COVID-19 curbs, from business halts to lockdowns, to rein in new infections, with the commercial hub of Shanghai bracing for another mass testing effort after finding a highly-transmissible Omicron subvariat.

Putin Sees ‘Catastrophic’ Energy Consequences

President Vladimir Putin warned the West on Friday that continued sanctions against Russia over the war in Ukraine risked triggering catastrophic energy price rises for consumers around the world.

Putin, who casts the sanctions imposed on Russia as a declaration of economic war, said that Western calls to reduce reliance on Russian energy had made global markets “feverish” with spikes in oil and gas.

Energy Speculator Long Bets Drop

The U.S. Commodity Futures Trading Commission (CFTC) reported that through July 5, energy market speculator bets were mostly lower during this time period. Long speculator bets were reduced in WTI Crude Oil and Gasoline. Brent Crude Oil was up slightly.

“Net long positions in WTI crude futures are now at their lowest level since March 2020. This was when demand collapsed amid the initial outbreak of COVID-19. This is despite ongoing signs of tightness,” ANZ Research analysts said in a note.

Short-Term Outlook

The drop in long bets is a concern. However, longs still outnumber the shorts. The price action suggests worries about a recession have been strong enough to drive many of the weaker longs out. Nonetheless, speculators aren’t playing the short side of the market. This is because of the war between Russia and Ukraine, and the supply disruptions,