Oil Price Fundamental Daily Forecast – Could Plunge on Weaker-Than-Expected GDP

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Thursday after yesterday’s spike to the upside. Concerns over U.S.-China trade relations are capping gains and encouraging profit-taking. A general “risk-off” tone is also pressuring demand for higher risk commodities like crude oil. Weakening factory output in China and Japan are also contributing to the drop in prices as well as record U.S. output.

At 10:54 GMT, April WTI crude oil futures are trading $56.59, down $0.35 or -0.61% and May Brent crude oil is at $66.08, down $0.50 or -0.75%.

Demand concerns were raised earlier in the session after a report showed factory activity in China contracted to a three-year low in February as export orders fell at the fastest pace since the global financial crisis. The official Purchasing Managers’ Index (PMI) fell for the third straight month, dropping to 49.2 in February from 49.5 in January, according to data released by the National Bureau of Statistics (NBS).

Similar concerns were raised following the release of a report that showed Japan’s industrial output fell 3.7 percent in January from December. This was the third straight monthly decline and came amid sluggish export demand. Following the news, the Ministry of Economy, Trade and Industry downgraded its basic assessment, saying production is “pausing,” compared with the previous month’s view that industrial output was “picking up slowly.”

In the U.S. on Wednesday, the Energy Information Administration said U.S. crude oil production rose to a record 12.1 million barrels per day. In other news, the EIA said U.S. commercial crude inventories fell 8.6 million barrels in the week to February 22 to 445.87 million barrels.

Finally, investors remained cautious amid uncertainty over the progress in U.S.-China trade talks after U.S. Trade Representative Robert Lighthizer told a Congressional hearing it was too early to predict an outcome in U.S.-China trade negotiations.

Daily Forecast

The trading action the last two days only proves that prices will rise on lower supply, and fall on demand concerns. Supply concerns are being alleviated by the OPEC-led production cuts, and the U.S. sanctions against Iran and Venezuela. These cuts are real. Bearish speculative traders, however, are betting on future demand issues due to the impact of the trade dispute on the Chinese and Japanese economies.

Later today at 13:30 GMT, the U.S. will release its month-long delayed Advance GDP report. It is expected to show the economy grew by only 2.2 percent, down from 3.4%. This number is probably enough to keep the pressure on crude oil, but prices could plunge sharply if the number comes in weaker-than-expected.