Oil Price Fundamental Daily Forecast – Supported by Hopes of Additional Output Cuts by OPEC; Capped by Demand Worries
U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower on Friday after clawing back most of their earlier losses. Oil prices dipped on the opening after three straight days of gains, as gloomy growth forecasts renewed concerns over the outlook for demand. Continuing to underpin prices was Wednesday’s surprise decline in U.S. inventories and optimism about more efforts to support prices by OPEC and its allies.
The Bearish News
Economists in a Reuters poll said a steeper decline in global economic growth remains more likely than a synchronized recovery, even as multiple central banks dole out rounds of monetary easing.
Another Reuters poll of economists found the recent truce in the U.S.-China trade war is not an economic turning point and has done nothing to reduce the risk that the United States could slip into recession in the next two years.
In Europe, a survey from economic powerhouse Germany, showed employment in the nation’s private sector fell for the first time in six years in October, suggesting that a third-quarter slowdown could stretch into the closing months of the year.
The Bullish News
Traders continued to react to Wednesday’s government weekly inventories report that showed an unexpected drop in supply.
According to the U.S. Energy Information Administration (EIA), crude inventories fell 1.7 million barrels in the week-ended October 18, compared with analysts’ expectations for a 2.2 million barrel build. This was a stark contrast with earlier inventory data released by industry group the American Petroleum Institute (API), which showed a build of 4.5 million barrels in U.S. crude stocks.
The EIA said the drawdown in weekly stocks came as refiners hiked crude runs and oil imports fell, which prodded a jump in both benchmark crude grades on Wednesday.
The early price action suggests buyers may take a break and begin booking profits ahead of the weekend. A WTI resistance area at $56.82 to $58.21 and a Brent target zone at $62.24 to $63.67 could also encourage the move.
We’re not expecting much of a break, however, with traders still betting on OPEC and its allies extending supply curbs to offset the weaker demand outlook in 2020.
Saudi Arabia, OPEC’s de facto leader, wants to focus first on boosting adherence to the group’s production-reduction pact with Russia and other non-members, an alliance known as OPEC+, before committing to more cuts, sources told Reuters.