Oil Price Fundamental Daily Forecast – Oversold Conditions Contributing to Short-Covering Rally

hort-covering tied to technically oversold conditions could be driving the price action on Friday. Speculators betting on renewed tensions in the Middle East could also be behind this week’s strength.
James Hyerczyk

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday, grinding higher for a third day out of four. Despite what looks like to be a counter-trend bottoming process, the market is still trading lower for the week. However, it’s still in a position to turn higher if it continues to strengthen throughout the session.

At 14:39 GMT, March WTI crude oil is trading $58.70, up $0.17 or +0.31% and March Brent crude oil is at $64.81, up $0.19 or +0.28%.

Gains Capped by Sluggish China Economic Data…

Earlier today, China, the world’s biggest crude importer, raised concerns about fuel demand when an economic report confirmed sluggish economic growth.

The world’s second-largest economy grew by 6.1% in 2019, its slowest expansion in 29 years, government data showed on Friday.

“A well-expected fourth-quarter China GDP rate (6%) provided little clue for oil price trading on Friday morning, and mounting downward economic pressure will perhaps limit oil’s upside in the mid- to long-term,” said Margaret Yang, market analyst at CMC Markets.

But, Strong Refinery Throughput Offsets Concerns

Surging Chinese demand as seen in refinery throughput figures offset the less positive economic growth data.

In 2019, Chinese refineries processed 651.98 million tonnes of crude oil, equal to a record high 13.04 million barrels per day, and up 7.6% from 2018, government data showed. Throughput also set a monthly record for December.

Supply Expected to Exceed Demand

On Thursday, the International Energy Agency offered a bearish view of the oil market outlook for 2020.

OPEC supply will exceed demand for its crude, the IEA forecast, even if OPEC member states comply fully with output cuts agreed with Russia and other producers in a grouping known as OPEC+.

OPEC also thinks that supply will exceed demand because of increasing non-OPEC supply growth.

Daily Forecast

Short-covering tied to technically oversold conditions could be driving the price action on Friday. Speculators betting on renewed tensions in the Middle East could also be behind this week’s strength. However, looking at the bigger picture, prices are likely to be capped by the forecasts calling for supply to outstrip demand.

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