Oil Price Fundamental Daily Forecast – Markets Propped Up by Expectations of OPEC Production Cuts

U.S. West Texas Intermediate and international-benchmark Brent crude oil are trading higher on Thursday shortly before the regular session opening. The early session rally is being fueled by expectations that falling prices may lead to OPEC production cuts. Better-than-expected trade data from China is also helping to boost prices as well as a steadying of the Chinese yuan currency at slightly better than 7 to 1 U.S. Dollar.

At 11:16 GMT, September WTI crude oil futures are trading $51.96, up $0.85 or +1.67% and October Brent crude oil is at $56.84, up $0.61 or +1.08%.

Both WTI and Brent crude oil hit multi-month lows on Wednesday after a surprise build in U.S. crude inventories added to rising concerns that the U.S.-China trade dispute could further dampen demand growth this year.

On Wednesday, the U.S. Energy Information Administration (EIA) reported a build of 2.4 million barrels in U.S. stockpiles versus analyst estimates of a 2.8 million draw. U.S. crude oil inventories are about 2% above the five-year average for this time of year.

Gasoline inventories rose 4.4 million barrels, with U.S. Gulf Coast gasoline stocks hitting the highest on record for this time of year, the EIA data showed.

After seven weeks of consecutive crude drawdowns, “there was a thought that today’s report would turn oil’s fortunes around, “ said John Kilduff, partner at Again Capital LLC in New York. “That support got taken out of the market.”

Earlier in the week, the EIA reduced its forecast for U.S. demand for crude and liquid fuels. The agency also cut its forecast for global crude and liquids consumption by 0.1% for both 2019 and 2020.

Meanwhile, U.S. crude production was set to rise 1.28 million bpd to 12.27 million bpd this year.

Daily Forecast

On Thursday, crude oil traders are zeroing in on reports that Saudi Arabia, the world’s biggest oil exporter, and other producers in OPEC may take action to support the market by reducing supply.

“The threshold is $60 a barrel and if you go below that for a significant period of time, I would expect supplies to be taken off the market in order to support prices up,” said Virendra Chauhan, an oil analyst at Energy Aspects in Singapore.

Bloomberg in a report on Wednesday cited a Saudi official saying that the country is in talks with other producers to take action to halt the oil price slide.

“Trade war rhetoric will continue to guide markets, but the comments from Saudi Arabia could lead to unprecedented action to stabilize prices,” said Alfonso Esparza, a Toronto-based senior market analyst at Oanda.

“It is hard to imagine what that would look like given how hard it was to get the OPEC+ to agree to the production limit agreement, but given the potential free fall from crude if the trade war continues, not option is off the table,” he said, referring to OPEC+, a group including OPEC and non-OPEC producers such as Russia.