Oil Price Fundamental Daily Forecast – Offsetting Fundamentals Setting Up Rangebound Trade

The outlook for prices is unclear at this time which usually suggests uncertainty and a rangebound trade. The wild card, however, is China. Prices should strengthen if the world’s largest economy announces a fresh stimulus package, or if a new trade deal is announced.
James Hyerczyk
Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher on Wednesday, supported by the OPEC-led supply cuts and hopes of fresh stimulus from China. At the same time, gains are being capped by worries about a global economic slowdown and the lingering trade dispute between the United States and China. Yesterday’s American Petroleum Institute (API) weekly inventories report had little effect on prices.

At 0910 GMT, March WTI crude oil futures are trading $52.63, up $0.24 or +0.44% and March Brent crude oil futures are trading $61.00, up $0.36 or +0.59%.

Bullish News

The production cuts from the OPEC-led group including Russia which began on January 1 appear to be providing support. We’ll know more about how well they are working once we start to see some compliance data.

Additional support is also being provided by hope that the U.S. and China will reach a trade agreement by March 1, and hope that China will provide more stimulus for the economy.

Last week’s mid-level trade talks between the U.S. and China helped fuel a strong rally. This week, it’s talk of new stimulus from the Chinese government that is providing support. This news turned the week positive on Tuesday.

Bearish News

Surging U.S. crude oil production will help to limit gains especially if it ends up offsetting the OPEC-led production cuts. Late last year, output hit a record 11.7 million barrels per day (bpd). According to U.S. Energy Information Administration (EIA) data, production is expected to rise to 12.0 million barrels per day this year and to nearly 13.0 million barrels per day in 2020.

A number of uncertainties are also starting to pile up. These include China’s weakening economy, due to the trade dispute, the U.S. government shutdown, lower-than-expected economic numbers from the Euro Zone and Brexit issues.

Other News

Late Tuesday, the API reported a crude oil inventory draw of 650,000 barrels for the week-ending January 11. Analysts were looking for a draw of at least 2.5 million barrels.

Inventories at the Cushing, Oklahoma futures delivery hub fell by 796,000 barrels.

The API also reported another jump in gasoline inventories. They rose 5.99 million barrels during the week-ending January 11. Distillate inventories increased by 3.214 million barrels.

Forecast

The outlook for prices is unclear at this time which usually suggests uncertainty and a rangebound trade. The wild card, however, is China. Prices should strengthen if the world’s largest economy announces a fresh stimulus package, or if a new trade deal is announced.

Later today at 1530 GMT, the EIA will release its weekly inventories data. It is expected to show a drawdown of 1.4 million barrels per day.

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