Oil Price Fundamental Daily Forecast – Oversupply Concerns Weighing on Prices, US-China Deal is Wildcard

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading marginally lower early Friday as investors digest a possible trade deal between the U.S. and China. This may have stopped the selling pressure, but since it is a highly speculative breaking story, buyers haven’t responded to it. Sellers may be limiting their pressure on the market, but they haven’t been spooked enough to start covering positions.

At 0737 GMT, December WTI Crude Oil is trading $63.38, down $0.31 or -0.50% and January Brent Crude Oil is at $72.65, down $0.24 or -0.33%.

Sentiment is being boosted in the emerging markets by news of a phone call between U.S. President Donald Trump and Chinese President Xi Jinping that traders hoped could signal an easing in U.S.-China trade tensions.

There are also reports early Friday that President Trump has asked officials in his administration to start drafting the terms of a possible trade deal with China, Bloomberg reported Friday, citing four unnamed sources familiar with the matter.

The announcement of a trade deal with China should lift any concerns over a global economic slowdown and a drop in crude oil demand.

At the start of today’s session, traders will continue to monitor the developments between the U.S. and China, but the main focus will be on the developing oversupply situation in the markets.

The main factor driving prices lower is production. In the United States, crude oil production is well above 11 billion barrels per day (bpd). Russian production has risen to a record high of 11.41 million bpd and Saudi Arabia is pumping 10.65 bpd. With the top three producers at over 33 billion bpd, they are meeting close to a third of the world’s almost 100 million bpd of consumption.

The recent surges in production has driven the market into oversupply.

With the main trend down on the charts and the oversupply situation, traders are expected to continue to press the short side. Additionally, the hedge funds are short so this could add further pressure. The markets could turnaround quickly if a trade deal between the United States and China is announced, but gains are likely to be limited until there is clarity over the impact of the sanctions on Iran which begin on Sunday.