Oil Price Fundamental Daily Forecast – Pressured by Increased Saudi Production, Possible Lower Asian Demand

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are under pressure early Monday amid an increase in supply from top exporter Saudi Arabia. Traders were also reacting to signs of an economic slowdown in Asia, which could hurt demand.

At 0513 GMT, August WTI crude oil is trading $73.44, down $0.71 or -0.96%. September Brent crude oil is at $78.25, down $0.98 or -1.24%.

To recap the key event over the week-end, U.S. President Trump tweeted on Saturday that Saudi Arabia’s King Salman bin Abdul-Aziz Al Saud had agreed to produce more oil, which Trump seemed to interpret as about 2,000,000 barrels per day. However, the White House has since walked back on the president’s comments, which appeared to be a little exaggerated, saying the King said his country can raise oil production if needed.

Nonetheless, any reports on increased supply are usually interpreted as bearish. So the initial reaction on Monday is normal. The next reaction by traders will be to the size of the expected reduction and the timing of the move.

On Friday, Reuters reported that Saudi Arabia’s output rose by 700,000 barrels per day (bpd) from May, and close to its 10.72 million bpd record from November 2016, more than making up for disruptions elsewhere within the OPEC community.

However, unplanned disruptions from Canada, Venezuela and Libya combined with upcoming new U.S. sanctions against Iran, have driven prices to multi-year highs.

Forecast

I think it’s safe to say that volatility will be at heightened levels today because the news is affecting both the supply and demand sides of the equation.

On the downside, Trump’s initial tweet about a 2M barrel increase in output from the Saudi’s is not true. However, it does create uncertainty for bullish investors because no one knows the size of the expected increase, nor the timing of such a move.

Additionally, a new concern for investors is demand. Demand had been trending higher all year and coupled with the OPEC-led strategy to reduce output, it was expected to lead to a possible supply deficit later this year. However, this outlook appears to have changed with the onset of the tariffs and how they could damage the global economy.

According to reports, Asia’s main economic hub around China, Japan and South Korea all reported a slowdown in export orders in June amid an escalating trade dispute with the United States. This is likely to lead to lower demand.

Finally, traders have to start preparing for long-term volatility because the U.S. is seeking to push Iranian exports of crude, condensate, and oil products to zero. Furthermore, Trump’s warning to close allies about doing business with Iran especially in Europe and Asia could upset the delicate supply/demand balance. Basically, there is no room for error at this time.