Oil Price Fundamental Daily Forecast – Hope for OPEC Production Cuts Underpinning Prices

In the absence of any major news, the direction of the market this week is likely to be determined by Tuesday’s American Petroleum Institute (API) inventories data and Wednesday’s U.S. Energy Information Administration (EIA) weekly report.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Monday shortly after the opening. The markets are also posting an inside move, which suggests investor indecision and impending volatility. Underpinning prices is the hope for additional production cuts by OPEC. Capping gains are worries that a global economic slowdown will lead to lower demand.

At 12:35 GMT, September WTI crude oil is trading $54.22, down $0.27 or -0.48% and September Brent crude oil is at $58.19, down $0.34 or -0.58%.

The Bullish Side

Most analysts agree that OPEC has to do more to reduce supply. The cartel with other non-OPEC producers are already cutting production with Saudi Arabia actually cutting more than their agreed quota, but due to expectations of lower demand and increased non-OPEC production next year, they are going to have to do more to trim the global supply and stabilize prices.

“If OPEC cuts are merely extended through 2020, prices are going to fall further from current levels,” Bernstein Energy said in a note on Monday. “We believe that OPEC needs to cut by a further one million barrels per day in 2020 if they are to defend oil prices at $60 a barrel.”

The Bearish Side

The International Energy Agency (IEA) said on Friday mounting signs of an economic slowdown had caused global oil demand to grow at its slowest pace since the financial crisis of 2008.

Daily Forecast

Traders continue to pay close attention to U.S.-China trade relations. The next key market driving event will likely be whether both economic powerhouses follow-through with plans to meet in Washington in September. That’s a long way off and anything can happen between now and then. Therefore, traders are likely to remain on edge which could produce a sideways trade with low demand expectations keeping a lid on prices, and the possibility of OPEC production cuts putting in a floor.

In the absence of any major news, the direction of the market this week is likely to be determined by Tuesday’s American Petroleum Institute (API) inventories data and Wednesday’s U.S. Energy Information Administration (EIA) weekly report.

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