Oil Price Fundamental Daily Forecast – Demand Concerns Weighing on Prices

Lower demand is the theme on Tuesday and its negative tone should continue to put pressure on prices. Traders are using the news as an excuse to book profits after a nearly month-long rally. Based on the price action the last two weeks, it seems the only way to stop the selling will be additional positive comments about U.S.-China trade negotiations.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading sharply lower on Tuesday in reaction to concerns about slowing global economic growth and lower demand. Worries about China’s economy seem to be the catalyst behind the weakness. On Monday, China reported the lowest annual economic growth in nearly 30 years on Monday.

At 1121 GMT, March WTI crude oil is trading $53.04, down $1.19 or -2.18% and international-benchmark Brent crude oil is at $61.53, down $1.25 or -1.99%.

Global Weakness Weighing on Prices

With the U.S. markets closed on Monday due to a bank holiday, traders had little reaction to China’s drop in GDP, however, with traders back on Tuesday, there was a negative reaction to comments from China’s state planner, who warned that falling factory orders pointed to a further drop in activity in coming months and more job losses. This news likely means that China has reached peak energy growth slightly above 10 million barrels per day (bpd) in late 2018.

Traders are also saying that industrial slowdowns tend to be leading indicators that feed gradually into lower demand for shipped oil products.

The slowdown in China is also spreading to additional countries in the region. On Tuesday, official data from South Korea showed the country’s growth slowed to a six-year low of 2.7 percent in 2018.

The International Monetary Fund (IMF) on Monday slashed its 2019 global growth forecast to 3.5 percent, from 3.7 percent in last October’s outlook. Traders said that with China’s slower economic growth and a failed UK exit from the European Union, we should expect more downward revisions in the future.

OPEC Supply Cuts Providing Some Support

Despite calls for lower demand, OPEC continues to do its job in trying to reduce supply. Some traders feel that long-term adherence to the OPEC-led supply cuts of 1.2 million barrels per day should create a floor in the crude oil market.

Forecast

Lower demand is the theme on Tuesday and its negative tone should continue to put pressure on prices. Traders are using the news as an excuse to book profits after a nearly month-long rally. Based on the price action the last two weeks, it seems the only way to stop the selling will be additional positive comments about U.S.-China trade negotiations.

Due to Monday’s holiday, the American Petroleum Institute’s weekly report has been pushed to Wednesday afternoon. The U.S. Energy Information Administration’s weekly inventories report will be released on Wednesday.

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