Oil Price Fundamental Daily Forecast – Democratic Party Win Means Slower Growth, Lower Demand, More Weakness

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower shortly before the regular session opening on Monday. Volume is low and the range is tight as traders continue to digest the impact of the start of sanctions against Iran, while addressing new concerns over low demand.

At 0926 GMT, December WTI crude oil is trading $63.01, down $0.09 or -0.13% and January Brent crude oil is at $73.01, down $0.16 or -0.22%.

As far as the sanctions are concerned, the market seems to have calmed after Washington announced 180-day exemptions to eight importers including China, India, South Korea, Japan, Italy, Greece, Taiwan and Turkey.

Throughout the summer and parts of the fall, crude traders were pricing in 100% compliance with the U.S. sanctions after the Trump administration requested 100% compliance under the threat of financial repercussions. This meant lower supply and higher prices. Once the U.S. announced it was going to offer waivers, the supply situation changed and the bottom began to fall out of the market.

Another factor driving prices lower is increased supply. Currently, the United States, Russia and Saudi Arabia are on pace to supply about one-third of daily global consumption.

The new worry for investors is lower demand. The strong U.S. Dollar has made dollar-denominated crude oil very expensive. Currency weakness in key growth economies in Asia is leading to forecasts of lower demand. At the same time, the escalating trade disputes between the United States and China is threatening growth in the world’s two biggest economies.

The change in the fundamentals to an oversupply situation has also driven out the hedge fund and money managers. According to the Commodity Futures Trading Commission, hedge fund managers were net sellers of petroleum-linked futures and options for a fifth week running last week.

CFTC data also showed that portfolio managers have been net sellers of 371 million barrels since the end of September, taking their net long position to the lowest level for 15 months.

Forecast

Prices appear to be stabilizing so the markets may have reached a temporary value area. It looks as if the sanctions on Iran have been priced into the oil markets. The focus now appears to be shifting toward global demand concerns. Traders will be looking for signs of an economic slowdown and this could trigger the next wave of selling pressure.

Technically oversold trading conditions or any adjustments to production should be supportive. Later today, traders will get the opportunity to react to fresh supply news with the release of the American Petroleum Institute’s weekly inventories report.

As far as the mid-term elections are concerned, a win by the Democrats generally means slower economic growth. This should lead to lower demand, and further downside pressure.