Oil Price Fundamental Daily Forecast – Demand Concerns Weighing on Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure on Monday but inside the previous session’s range. This indicates investor indecision and impending volatility as investors assess the potential impact of lower demand and a possible U.S. response to Iran’s alleged involvement in the attack on two oil tankers last week.

At 11:55 GMT, August WTI crude oil is at $52.27, down $0.52 or -0.93% and August Brent crude is at $61.41, down $0.60 or -0.97%.

While the inside trade may indicate opinions are mixed about the catalysts behind the price action, the lower trade suggests expectations of lower demand are outweighing supply fears being generated by Iran’s potential involvement in the attacks on oil tankers in the Gulf of Oman last week.

Bearish factors continue to drive prices lower with pressure coming from government reports and expert opinion on demand.

Last week, the U.S. Energy Information Administration (EIA) reported crude stockpiles rose unexpectedly for a second week in a row, climbing 2.2 million barrels the week-ending June 7. Traders were looking for a drawdown of about 481,000 barrels. U.S. stockpiles now stand at 485.5 million barrels, the highest level since July 2017. This is 8% above the five-year average for this time of year.

Selling pressure was also fueled by a report from the U.S. Energy Information Administration (EIA) that showed a forecast for weaker 2019 world oil demand growth and U.S. crude production.

The report went on to say the US/China trade conflict, potential US tariffs on Mexico and lower industrial activity have contributed to concerns “that economic growth could be lower than market participants’ expectations, which would cause oil demand growth to also be lower than expected.”

The International Energy Agency (IEA) cut it demand growth forecast for 2019 by 100,000 barrels per day (bpd) to 1.2 million bpd, due to worsening prospects for world trade. However, this news was somewhat softened after the IEA said demand growth would climb to 1.4 million bpd for 2020.

OPEC cut its 2019 forecast for growth in global oil demand even lower than the IEA, to 1.14 million bpd.

Finally, on Friday a report showed China’s industrial output growth slowed to a more than 17-year low of 5% in May, well below expectations, in the latest sign of weakening demand in the world’s second-largest economy as the United States ramps up trade pressure.

Professional money manager liquidation is also weighing on prices. “Seven consecutive weeks of selling has now reduced the combined longs in Brent and WTI crude oil by 41% to 421,000 lots, a near-four-month low,” said Saxo Bank commodity strategist Ole Hansen.

The key positive at this time is expectation that OPEC and its allies will agree on extending a production cut agreement in a meeting expected to be held during the first week of July.