Oil Price Fundamental Daily Forecast – Dovish Fed Minutes Could Raise Demand Concerns

James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are inching higher on Wednesday after a dramatic reversal to the downside the previous session. The markets continue to be supported by the OPEC-led production cuts and U.S. sanctions against Iran and Venezuela. However, a report from the International Monetary Fund (IMF) on Tuesday raised concerns that a global economic slowdown would lead to lower demand.

At 09:35 GMT, May WTI crude oil futures are trading $64.45, up $0.47 or +0.75% and June Brent crude oil is at $70.99, up $0.38 or +0.54%.

On Tuesday, the markets reversed sharply to the downside after touching five-month highs earlier in the session. The catalyst behind the selling pressure was a report from the IMF that reduced its global economic growth forecast for 2019 for a second time this year. The IMF cited risks from trade tensions and tighter monetary policy by the Federal Reserve as reasons for the downgrade.

The fund said it expects the world economy to grow by 3.3% this year. That’s down from its previous outlook of 3.5%, which was also a downgrade. The IMF added that it expects the economy to expand by 3.6% in 2020, however.

The report spooked oil traders into taking profits and lightening up on the long side as it signaled the possibility of lower demand later in the year.

American Petroleum Institute Weekly Storage Report

Further pressuring prices late Tuesday was the American Petroleum Institute’s weekly storage report which showed a build in crude oil inventory of 4.1 million barrels for the week-ending April 5. This was higher than the forecast of a 2.294-million-barrel build.

Including this week’s data, the net build is now 7.53 million barrels for the 13-week reporting period so far this year, according to Oilprice.com.

The API also reported a draw in gasoline inventories for the week-ending April 5 in the amount of 7.1 million barrels. Analysts were looking for a draw of 2.009 million barrels. Distillate inventories decreased by 2.4 million barrels, compared to an expected draw of 1.3 million barrels.

Daily Forecast

The bias is still to the upside because the OPEC-led supply cuts and the U.S. sanctions against Iran and Venezuela. Further support could come from an escalation of the conflict in Venezuela.

But the IMF warning is real and this could slow down the rally or even give long traders a reason to begin taking profits or trimming their long positions. Today’s Fed minutes could have a bearish impact on prices if they come across as dovish.

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