Oil Price Fundamental Daily Forecast – Downside Pressure Building

The wildcard is US-China trade relations. Reports say the two sides aren’t making any progress and may be hung up over the US treatment of Chinese communication Huawei. If the talks break off then tensions over lower demand will rise again, and we’re likely to see another round of selling pressure on global economic growth concerns.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower on Thursday after yesterday’s steep sell-off. The market is also trading inside yesterday’s wide range, suggesting investor indecision and impending volatility. In this case, it probably means this week’s steep break may be a bit overdone. However, it could also mean the short-sellers are rounding up the troops for further weakness.

At 08:34 GMT, September West Texas Intermediate crude oil futures are trading $56.76, down $0.16 or -0.30% and September Brent crude oil is at $63.54, down $0.12 or -0.19%.

In case you haven’t noticed, there’s been a dramatic shift in sentiment in the markets this week. However, we had warned that some of the events supporting the market were short-term like the hurricane and the elevated tensions in the Middle East.

Buyers put in a premium for Hurricane Barry, but other than halting production for a couple of days, the storm did little to disrupt supply. Buyers also drove prices higher after an Iranian navy vessel taunted a British tanker. Once again, since there was no supply disruption, speculative buyers were forced to liquidate.

The surprise for bulls earlier in the week was the announcement that Iran was willing to talk with the U.S. about its nuclear missile program. The second surprise for bulls was the jump in crude oil products inventories on Wednesday, according to a government report. Reports of increasing U.S. shale production also weighed on prices.

This is where we are at right now, which means prices are being supported by the OPEC-led supply cuts. And if you believe the demand figures from OPEC and the International Energy Agency, these cuts are likely to be offset by the rising U.S. production unless OPEC and its allies cut further.

US Stockpiles of Products Pressure Prices

U.S. crude inventories fell 3.1 million barrels, the weekly EIA report showed, but this came in line with expectations with some analysts predicting a decrease of 2.7 million barrels, and others forecasting a 3.6 million barrel draw.

However, gasoline stocks rose 3.6 million barrels, compared with analysts’ expectations for a 925,000-barrel drop. Distillate stockpiles grew by 5.7 million barrels, much more than expectations for a 613,000-barrel increase, the EIA data showed.

Daily Forecast

After this week’s long liquidation, traders are looking for a balance area. The OPEC cuts remain supportive and the situation in the Middle East is still hot. Although the US and Iran are scheduling talks, the two sides are likely wide apart so nothing may get accomplished during this first round of discussions. I think all the announcement of talks has done is postpone military activity at this time.

The wildcard is US-China trade relations. Reports say the two sides aren’t making any progress and may be hung up over the US treatment of Chinese communication Huawei. If the talks break off then tensions over lower demand will rise again, and we’re likely to see another round of selling pressure on global economic growth concerns.

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