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Oil Price Fundamental Daily Forecast – Global Economic Slowdown Fears Puts Focus on Demand

By:
James Hyerczyk
Updated: Oct 2, 2019, 10:45 UTC

Despite the generally friendly outlook for supply this week, prices fell considerably because of the overwhelmingly bearish news on U.S. manufacturing. This news, combined with similar news from Europe are signs of a global economic slowdown and this is bearish for prices.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading mixed on Wednesday, however, sentiment is clearly bearish and momentum is to the downside. A little more than two weeks ago, traders were worried about supply after an attack on Saudi Arabia’s oil facilities spiked prices about 20% higher. On Tuesday, the U.S. futures contract traded below the bottom hit before the jump in prices, erasing more than all of those gains. The Brent contract is following close behind.

At 08:52 GMT, November WTI crude oil futures are trading $53.75, up $0.13 or +0.24% and December Brent crude oil is at $58.67, down $0.22 or -0.37%.

The catalyst behind the selling pressure was weak U.S. economic news that dimmed crude’s demand outlook. U.S. manufacturing activity tumbled to a more than 10-year low in September as the U.S.-China trade war weighed on exports, according to a survey from the Institute for Supply Management (ISM).

The manufacturing activity index showed a reading of 47.8, according to the ISM report, shrinking for the second straight month and below economists’ expectations of 50.1. A reading below 50 indicates contraction.

American Petroleum Institute Weekly Inventories Report

The API reported late Tuesday a large crude oil inventory draw of 5.92 million barrels for the week-ending September 26. Traders were looking for a 1.567 million barrel build.

The API also reported a build of 2.133 million barrels of gasoline for week-ending September 26. Analysts predicted a build in gasoline inventories of 449,000 barrels for the week.

Distillate inventories fell by 1.741 million barrels for the week, while inventories at Cushing rose by 373,000 barrels.

Daily Forecast

This week, WTI crude oil is down 4.10% and Brent crude oil is off by 3.65%. The selling pressure is being primarily driven by demand concerns.

On the supply side, the bearish news is that Saudi Aramco has restored full oil production and capacity to the levels they were at before attacks on its facilities on September 14. However, this news is being outweighed by reports showing production declines in the United States, Russia and OPEC. Tuesday’s bullish API report is also supportive.

Despite the generally friendly outlook for supply this week, prices fell considerably because of the overwhelmingly bearish news on U.S. manufacturing. This news, combined with similar news from Europe are signs of a global economic slowdown and this is bearish for prices.

Today’s ADP private sector jobs report could also weigh on prices if the data is weak. Crude oil traders will also be watching Friday’s U.S. Non-Farm Payrolls report. Going forward, not only will crude traders be watching industry reports, but they will also be watching U.S. economic reports because of fears the economy may be heading toward a recession. This will only mean lower demand.

Today’s U.S. Energy Information Administration report at 14:30 GMT is forecast to show a 2.0 million barrel build, but you can throw that estimate out since the API report showed an unexpected drawdown.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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