Oil Price Fundamental Daily Forecast – Jump in U.S. Rig Count Returns Supply Concerns to Forefront

Traders have returned to the traditional supply/demand fundamentals. At this time, both are major concerns driving prices lower. Essentially, too much U.S. supply and weak global demand are offsetting any positives derived from the OPEC-led production cuts.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international benchmark Brent crude oil futures are trading lower on Monday. Traders are blaming the selling pressure on concerns over rising U.S. production and worries over lower demand due to the slowing global economy. Both events are likely to offset any positive gains from the OPEC-led production cuts, which began on January 1. Buyers are also showing no reaction to the weaker U.S. Dollar, which tends to make dollar-denominated crude oil more attractive to foreign buyers.

At 0641 GMT, March WTI crude oil is trading $52.98, down $0.71 or -1.32% and March Brent crude oil is at $60.86, down $0.78 or -1.27%.

Baker Hughes U.S. Oil Rig Count Data

On Friday, energy services firm Baker Hughes reported that the number of active U.S. rigs drilling for oil rose by 10 to 862. The previous week, the number of active U.S. rigs dropped 21. The total active U.S. rig count also climbed by 9 to 1059, according to Baker Hughes. This was the first rig increase of the new year.

U.S. Oil Production

According to the latest figures from the U.S. Energy Information Administration, U.S. crude oil production rose to a record 11.9 million barrels per day (bpd) late last year.

Last week, the International Energy Agency said that the United States is on track to reaffirm its position as the world’s biggest producer of crude by volume during 2019.

“While the other giants voluntarily cut output, the U.S. – already the biggest liquids supplier – will reinforce its leadership as the world’s number one crude producer,” the IEA said in its latest monthly report.

Slowing Global Economy

Early last week China announced that its official economic growth came in at 6.6 percent in 2018, the slowest pace since 1990. Fourth-quarter GDP growth was 6.4 percent, a sign the economy is decelerating.

Shortly thereafter, an announcement from the International Monetary Fund (IMF) further support the Forex pair when it cut its global growth forecast for 2019 to 3.5 percent from 3.7 percent.

Earlier today, a new report showed earnings at China’s industrial firms shrank for a second straight month in December on falling prices and sluggish factory activity.

Forecast

It looks as if last week’s potentially bullish news about supply disruptions in Venezuela has been moved to the back-burner. This event is not likely to become important again unless the U.S. sanctions the country.

In the meantime, traders have returned to the traditional supply/demand fundamentals. At this time, both are major concerns driving prices lower. Essentially, too much U.S. supply and weak global demand are offsetting any positives derived from the OPEC-led production cuts.

Both WTI and Brent are in uptrends on the daily charts, but having trouble taking out weekly resistance. If buyers start to grow uncomfortable given the bearish fundamentals then we could start to see some heavy selling pressure.

The wildcard is OPEC and its allies. They could cut more than expected which would be supportive, or data could come out that shows the cuts aren’t working as well as expected. This could trigger a steep break.

The Fed’s assessment of the economy on Wednesday and Friday’s U.S. Non-Farm Payrolls report will also have an impact on crude prices.

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