Oil Price Fundamental Daily Forecast – Increased Risk Appetite Boosting Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Tuesday on renewed appetite for risky assets. Prices remain supported by the OPEC-led supply cuts and U.S.-directed sanctions against Iran and Venezuela, while fear of a recession raised concerns over future demand and capped potential gains.

At 10:47 GMT, May WTI crude oil futures are trading $59.55, up $0.73 or +1.24% and June Brent crude oil is at $67.32, up $0.51 or +0.76%.

OPEC and its allies have been successfully withholding around 1.2 million barrels per day (bpd) of supply since January 1, while the U.S. has done its part to reduce exports from Iran and Venezuela. This combination has helped prevent a steep sell-off in crude oil since early December while encouraging investors to buy short-term weakness. This has helped sustain the rally for 90 days.

However, for weeks, WTI and Brent have been butting up against technical resistance as bullish traders await further news about an extension of the supply cuts. Furthermore, investors are also having to deal with the threat of lower demand due to fears that the global economic slowdown will lead to a recession.

Other analysts view the current situation this way:

Ole Hansen, head of commodity strategy at Saxo Bank says, “Recession risks have risen to the highest since 2008.”

J.P. Morgan Chase says, “Global factory output growth slowed to a 1 percent rate last quarter, and indicators point to a near stall this quarter.” Additionally, “Outside China, Asian industry was already contracting as we turned into the New Year.”

Daily Forecast

The battle between those betting on tightening supply to continue to underpin prices and those betting on a drop in demand to pressure prices likely means crude oil prices could become rangebound until one side blinks.

That being said, traders will be looking for other factors to drive the price action. One factor is increased demand for higher risk assets. This is helping to support prices today. Another event will be today’s American Petroleum Institute (API) weekly inventories report.

Prices seem to be supported today by early strength in the stock market, but they could turn south if stocks weaken. Late in the session, a drop in API inventories could also be supportive, but prices could fall if there is an unexpected inventory build.