Oil Price Fundamental Daily Forecast – New Demand Concerns Weighing on Prices

As I wrote last week, this current rally is not about trying to drive oil prices back to triple digits, but rather to find the balance point for supply/demand and prices.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading lower on Tuesday as traders return from the long U.S. holiday weekend. Caution over future demand due to slowing global economic growth is weighing on prices, while the markets remain underpinned by the OPEC-led supply cuts and U.S. sanctions against Venezuela.

At 10:39 GMT, April WTI crude oil is trading $56.33, down $0.13 or -0.21%, while April Brent crude oil is at $66.19, down $0.31 or -0.47%.

After rallying last week due to optimism over U.S.-China trade relations, prices are under pressure early this week on new concerns over the lack of progress from the recent trade negotiations in Beijing. This is helping to raise new concerns about the health of the global economy this year.

Global Markets Remain Tight

Although caution flags are being raised on Tuesday because of demand worries, new data suggests the global oil market remains relatively tight because the OPEC-led production cuts are working to reduce the excess supply, while providing some stability to prices.

According to a new report from data intelligence firm Kepler, “Saudi seaborne crude exports fell in the first half of February, with departures standing at 6.204 million barrels per day (bpd), a 1.341 million bpd decline on the previous month and 0.91 million bpd decline on the year.”

Daily Forecast

As I wrote last week, this current rally is not about trying to drive oil prices back to triple digits, but rather to find the balance point for supply/demand and prices.

On Monday, Bank of America Merrill Lynch said in a note that considering the economic outlook and supply and demand balances, the bank said it expects Brent prices to average between $50 and $70 per barrel, “anchored around $60.”

My work suggests that the current short-term WTI price target is $59.51 to $63.40 and the Brent target zone is $67.77 to $71.79.

If the OPEC-led production cuts remain the key rally driver then the move into these levels is likely to be a labored event. If there is considerable progress in U.S.-China trade talks or a trade deal then prices are likely to spike into these areas.

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