Oil Price Fundamental Daily Forecast – Late Session API Report Could Trigger Volatile Reaction

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging lower shortly before the regular session opening. An easing of tensions in the Middle East is helping to hold prices inside yesterday’s range. This suggests investor indecision and impending volatility.

The lack of fresh news regarding U.S.-Iran relations has shifted the focus back to the basic fundamentals. Concerns over a global recession and its impact on demand as well as worries over increasing U.S. stockpiles have move back to the forefront.

At 11:09 GMT, August WTI crude oil is at $57.60, down $0.30 or -0.54% and August Brent crude oil is trading $64.42, down $0.44 or -0.68%. (Rollover to September Brent on Wednesday.)

Global Recession and Demand

On Monday, Wall Street brokerage firm UBS told clients that the globe is “one step away” from recession as US President Trump and Chinese President Xi Jinping head to the G-20 summit in Osaka, Japan. The two will try to hash out differences in an effort to get trade talks back on track.

While most investors feel the meeting will yield little fruit, some are worried about an escalation of tensions if the two parties walk away disappointed. Trump said back on June 6 that he will consider raising tariffs on $300 billion of Chinese goods.

UBS believes that new tariffs would mean “major” changes to global GDP and market forecasts. This will result in lower demand for crude oil.

If the trade war escalates, “we estimate global growth would be 75bp lower over the subsequent six quarters and that the contours would resemble a mild “global recession” – similar in magnitude to the Euro Zone crisis, the oil collapse in the mid-1980s and the “Tequila” crisis of the 1990s,” UBS’ Arend Kapteyn wrote in a note.

U.S. Stockpiles

Investors will get their first peek at U.S. crude oil stockpiles late Tuesday at 20:30 GMT when the American Petroleum Institute (API) releases its inventories report for the week-ending June 21.

Last week, the API reported a small draw in crude oil inventory. The net build so far this year is still an uncomfortable 34.02 million barrels for the 25-week reporting period.

Daily Forecast

The upside momentum seems to be slowing as investors shed risky assets ahead of the G-20 summit and the easing of tensions in the Middle East. However, prices are likely to remain in a range until the API report at 20:30 GMT. A bearish report will give investors a reason to book profits, while a bullish report could encourage investors to add to their long investments.