Oil Price Fundamental Daily Forecast – Light Profit-Taking, Limited Reaction to China Retaliation Pressuring Prices

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading slightly lower early Thursday, mostly on profit-taking following yesterday’s spike to the upside. Technical sellers are also showing up as U.S. crude tests a potential resistance zone and Brent approaches a retracement zone.

At 0725 GMT, October WTI crude oil is trading $67.73, down $0.14 or -0.20% and October Brent crude oil is at $74.49, down $0.29 or -0.38%.

Fundamentally, the markets are facing pressure especially the international futures contract because of an escalation of the trade dispute between the United States and China. Earlier today, China retaliated as new U.S. tariffs kicked in on $16 billion worth of Chinese imports by placing its own fresh tariffs on $16 billion worth of additional imports from the U.S. including fuel, steel products, autos and medical equipment.

Losses on being limited by yesterday’s bullish U.S. Energy Information Administration (EIA) weekly inventories report.

On Wednesday, the EIA announced that U.S. commercial crude oil inventories fell by 5.8 million barrels in the week to August 17 to 408.36 million barrels. Additionally, the EIA said that U.S. crude oil output rose back to 11 million barrels per day, but this had little effect on the bullish response to the inventories data.

Forecast

China’s retaliation against the U.S. is having some effect on prices today, but it really wasn’t a surprise. They have retaliated in the past when U.S. sanctions kicked in. Technical factors are probably having a bigger effect on the market as WTI tests a key retracement zone at $67.59 to $68.46 and Brent approaches $75.29 to $76.22.

I believe the primary objective of the current rally has been reached so prices could settle into a range the next several days while traders wait for the next piece of important news. I thought that last week’s sell-off was a little overdone and an over-reaction to a report calling for a drop in demand. Remember, the report came out at the height of the Turkish financial crisis so traders were dumping dollar-denominated assets aggressively.

That being said, the fundamentals seem to be balanced with prices being supported by low U.S. inventories and worries about supply due to the sanctions on Iran. Gains are being limited by lingering concerns over demand.

Technically, the markets are trading at or near the mid-points of their late June-mid-August ranges so you can’t get any more balanced than that.