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James Hyerczyk
EIA Oil Report

U.S. West Texas Intermediate and international-benchmark crude oil futures are trading lower on Wednesday, putting them in a position to take out their June bottoms. After consolidating for several days, crude oil finally succumbed to the same pressures that have driven U.S. equity markets and U.S. Treasury yields sharply lower – concerns over a slowing global economy.

At 10:26 GMT, September WTI crude oil is trading $53.34, down $0.31 or -0.53%, and October Brent crude oil is at $58.55, down $0.40 or -0.66%.

Demand is Major Concern

Today’s price action indicates that crude oil traders are growing more concerned about falling demand given the escalation of trade tensions between the United States and China.

ING lowered its 2019 price outlook, mostly because of demand concerns, forecasting that global oil supplies will exceed consumption in the first half of next year.

Fitch Solutions said in a note, “The most significant outcome of the ramp-up in tariff measures will be through increased economic and trade uncertainties, negatively impacting physical oil and gas demand and market sentiment.”


Mid-East Tensions Slowing Price Decline

Geopolitical tensions in the Middle East are offering some support especially after Iran seized a number of tankers in recent weeks in the Strait of Hormuz.

Saudi Arabia Energy Minister Khalid Al-Falih and U.S. Energy Secretary Rick Perry on Tuesday expressed mutual concern over threats targeting freedom of maritime traffic in the Arabian Gulf.

American Petroleum Institute Weekly Inventories Report

The API reported a crude oil inventory draw of 3.4 million barrels for the week ending August 2. Traders were looking for a 2.848 million draw.

Gasoline inventories for the week-ending August 2 fell 1.1 million barrels. Analysts had predicted a draw in gasoline inventories of 722,000 barrels for the week.

Distillate inventories rose by 1.2 million barrels for the week, while inventories at Cushing fell by 1.6 million barrels.

Daily Forecast

Today’s U.S. Energy Information Administration (EIA), due to be released at 14:30 GMT, is expected to show a 2.9 million barrel draw down for the week-ending August 2. However, given the reaction to the bigger-than-expected draw in the API report, traders may not be too interested in the EIA report unless there is a substantially larger draw, or if there is an unexpected inventory build.

The price action indicates investors have become increasingly concerned about the demand side of the equation, and this means the selling could intensify if U.S.-China trade relations worsen significantly.

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