Oil Price Fundamental Daily Forecast – Hope and Optimism Not Enough to Offset Calls for Lower Demand

The lower demand numbers are real so traders are paying close attention to the warning from OPEC. On the other hand, the rally we saw on Monday was fueled by hope and optimism. Usually, real wins the battle, but there is always the chance that hope and optimism will turn into reality. Unfortunately, this is not likely to occur over the near-term.
James Hyerczyk
WTI and Brent Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday shortly before the regular session opening. The markets spiked slightly higher earlier in the session, but gains were lifted by the lack of strong buying and prices have since retreated back to nearly unchanged.

At 10:30 GMT, October WTI crude oil is trading $56.12, down $0.02 or -0.04% and December Brent crude oil is at $58.80, up $0.10 or +0.17%.

Less than a week since the 2-year/10-year U.S. Treasury yields inverted, flashing a recession signal, traders are still grappling with the idea of lower demand and a potential global economic recession. The issue was compounded on Friday when OPEC released a surprisingly downbeat assessment of the situation.

The lower demand numbers are real so traders are paying close attention to the warning. On the other hand, the rally we saw on Monday was fueled by hope and optimism. Usually, real wins the battle, but there is always the chance that hope and optimism will turn into reality. Unfortunately, this is not likely to occur over the near-term.

U.S.-China relations were in the news overnight. In an effort to combat the economic slowdown hitting China, the People’s Bank of China announced a stimulus measure designed to give Chinese corporations access to cheaper loans. The move closely resembles the U.S. prime rate, where lower borrowing rates are offered to the best corporations.

In a move that brought some relief to traders, the United States said it would extend a reprieve that permits China’s Huawei Technologies to buy components from U.S. companies, signaling a slight softening of the trade conflict between the two economic powerhouses.

The move may have been a goodwill gesture on the part of the Commerce Department, but China said the U.S. government’s decision to add more of Huawei’s affiliates to a blacklist is “unjust” and “politically motivated” so scratch this off your list of reasons why crude prices could go up.

The response to a drone attack over the weekend launched by Yemen’s Houthi group on the Shaybah oilfield in eastern Saudi Arabia caused a short-term worry about a supply disruption on Monday, but that immediate concern came and went. However, it did renew thoughts that the Middle East is a perpetual hotbed and likely to continue to underpin prices somewhat.

Daily Forecast

Barring any surprise news about U.S.-China trade relations, crude oil prices are likely to remain rangebound throughout the session. Late Tuesday at 20:30 GMT, we could see a volatile reaction to this week’s American Petroleum Institute’s (API) storage report. Traders are looking for a small draw of about 1.4 million barrels.

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